S. 129(6) of Customs Act barring ex-Members from practise before CESTAT is valid
The appellant was appointed Member (Technical) of CEGAT on 1.11.1990 and demitted office on 7.3.1993. He enrolled as an advocate with the Bar
Council of India on 18.4.1993. S. 129 (6) of the Customs Act, 1962 introduced by FA 2003 debarred ex-Members from appearing, acting or pleading before the CEGAT/ CESTAT. S. 129(6) was challenged before the High Court on the ground that (i) it was ultra vires Article 19(6) of the Constitution of India & (ii) could not apply to persons who had demitted office before the insertion of the provision. The High Court (P.C. Jain vs. UOI) rejected the plea on the ground that the restriction was to remove a perceived bias and was not unreasonable. On appeal to the Supreme Court, HELD dismissing the appeal:
By Pradeep Jain, Preeti Parihar and Sukhvinder Kaur
“WHEN
a new source of taxation is found it never means, in practice, that the
old source is abandoned. It merely means that the politicians have two ways of milking the taxpayer where they had one before.”
INTRODUCTION
The
above quote can aptly be fitted to the situation of taxpayers paying service tax under the abatement scheme. As per the current scenario, the
input service tax credit is allowed if the same is used for providing output taxable service or producing taxable goods. If both materials and
services are used in providing taxable services, the service provider can either avail benefit of Notification no. 12/2003-ST dated 20.06.2003; or Notification no. 1/2006-ST dated 1.3.2006. Both of these notifications allow the deduction of value of material supplied from the
gross value charged by the service provider. Thus, service tax is payable only on the service component included in the gross value. Both of these notifications are issued to facilitate the service providers who use the material alongwith the services subject to the conditions specified therein. These conditions are creating the anomalies which are
the focus of this piece of enunciation.
NOTIFICATION NO. 12/2003-ST DATED 20.06.2003:-
This
notification allows the deduction of value of material from the gross value charged by the service provider from the recipient. However, the deduction in respect of material is allowed only if there is documentary
proof relating to material supplied. In other words, the deduction is based on actual basis and the service provider should have invoices pertaining to the material so supplied. Further, the invoice raised by service provider should separately show the value of material as well as
service charges. The benefit under this notification is allowed only if
the service provider has not taken the credit of duty paid on such goods/material under the provisions of Cenvat Credit Rules, 2004. However, if the credit has been availed, it is reversed before sale of such goods/material. The notification restricts the availment of credit of duty paid on inputs only. However, credit of duty paid on capital goods as well as credit on input services is allowed.
An
abatement scheme also has been provided for; vide notification no. 01/2006 ibid. Abatement at the prescribed rates is allowed in respect of
services specified under this notification. Thus, abatement can be claimed only if the service is listed in this notification. Further, the
rate in respect to the service is also fixed by the government. This notification covers the services like GTA, Mandap Keeper, Rent a Cab etc. But the benefit of abatement is also a conditional one. It is provided that abatement will be available only if the service provider does not avail Cenvat credit under the provisions of Cenvat Credit Rules, 2004 or benefit of Notification No. 12/2003-ST dated 20.6.2003. Thus, under abatement scheme, benefit of duty paid on inputs and capital
goods as well as credit of input services is also denied.
ANALYSIS OF NOTIFICATION NO. 12/2003 AND NO. 1/2006:-
Government
intends to levy the service tax only on the value of services provided.
But in certain services, material is indispensible part of service. In order to exempt the material portion, these two notifications are issued. Notification no. 12/2003 allows the exemption to material value on actual basis subject to availability of documentary proof. But practically, it is very difficult to find the actual value of material supplied as purchase is always in bulk and sale is in parts. Howsoever calculated and shown in invoice, the department doesn't accept so easily. As such, most of the service providers opt for the abatement scheme where deduction at prescribed rate is calculated from the value charged by the service provider. However, government has attached simple
conditions with the difficult scheme. Under notification no. 12/2003 which is less availed; is blessed with simple condition where credit of only inputs is restricted. On the other hand, abatement scheme which is more popular; is stacked with more restrictions. Here all the three types of credits – inputs, capital goods and input services are restricted.
ANOMALOUS SITUATION
Under
both of these notifications, the credit is denied on the ground that service tax should not be charged on the cost of materials/goods supplied or used during the course of providing service. This has been done so as to keep symmetry between sales tax and service tax where the sale of goods are chargeable to sales tax and providing of service is leviable to service tax. As the value of material has already suffered sales tax, it should not be charged to service tax.
So
far as notification no. 12/2003 is concerned there is absolutely no problem as credit of only duty paid on inputs is denied. However, an anomalous situation is created under abatement scheme where all the three types of credits are denied. Looking to the intention of government, it is correct to deny the benefit of credit on input used; but what about the denial of credit on input services. Denial of benefit
of input service credit creates an anomalous situation, especially for small service providers. They are being forced to pay the tax on tax. This may be explained by following example:-
There
is abatement of 60% available in case of Rent–a–cab service. Suppose a company invites quotation from rent–a– cab operators to provide services
of 20 cars. A big operator having a fleet of 20 cars will give quotation of say Rs. 10,000 per car per month. However, a small rent a cab operator owing a fleet of 10 cars will naturally have to source 10 cars from outside also. Person supplying car will charge service tax on the service provided in respect of 10 cars. Thus, the small operator apart from bearing cost of outsourcing, will also have to bear a unnecessary burden of 4.12% of service tax, because he is not able to take credit of the same owing to the abatement. Due to increase in his cost, he may lose the contract. The above illustration can be presented in the following table:-
Particulars
Big rent-a-cab operator
Small rent-a-cab operator
Cost 20 cars per month (10000*20)
200000
-
Cost of
first 10 cars (10000*10)
-
100000
Cost of another 10 cars outsourced (outsourcing cost + ST @ 4.12%) [110000 + 4532]
-
114532
Total Cost of 20 cars to rent-a-cab operators
200000
214532
Service tax @ 4.12%
8240
8839
Total quotation given for 20 cars per month
208240
223371
The
above table clearly indicates the fact that in case of sub-contract, the value on which service tax is charged (here Rs. 214532/-) by the main contractor includes the amount of service tax (here Rs. 4532/-) in it. Thus, the service tax is charged on the value of service tax. This situation arises where the main contractor is operating under abatement scheme.
The
same position equally applies to the commercial construction service providers, for eg. a builder will have to sub – contract his service and
the service tax charged by sub – contractor will not be available as credit to the builder, consequently leading to increase in cost which will be passed on to final consumer.
Thus,
if in case an output service provider avails the benefit of abatement, then he cannot avail the cenvat credit on the input services received by
him. And when he pays service tax on his output services then he is also paying service tax on tax already charged by the input service provider. Thus, tax is levied on tax. And an anomaly is created.
BENEFIT TO OTHER SERVICES WITH SIMILAR SITUATION:-
Works
contract services (WCS) are being chargeable to service tax with an option to pay either on 10% of the taxable value of services provided or
on the 4% of the total value of the works contract. However, in the WCS, only credit of input is being denied to the assessee and credit of input services is being allowed to the assessee, thus in Works Contract service a better concession has been to the service provider than the concession of abatement given under Notification No. 01/2006-ST,and consequently there is no double taxation.
In
a recent circular no.147/16/2011, CBEC clarified that services provided
by sub-contractor in respect of WCS in respect of construction of dams,
tunnels, road & bridges are exempt from service tax since the main activity is itself exempt from tax. Board is of the view that services provided by sub – contractor will unnecessarily increase the tax burden if service tax will be impose, since the main activity is exempt from tax and no input credit of the same can also be taken.
If
we take the same in above example, the services provided by sub – contractor are nothing but increasing the tax burden and thus the ultimate cost, since the credit of the same is not available.
WHAT CAN BE THE REMEDY?
The
anomaly exists in the abatement scheme regarding non-availment of the credit of input services. If the credit is not allowed on input services, the tax suffered by these services is automatically included in the cost of output services. Thus, the tax is again levied on the component of service tax. This situation is against the policy of the government. Thus the option to avoid the anomaly, the only solution will
be to remove the condition denying Cenvat credit on input services. It is not proposed that denial of credit on inputs and capital goods should
also be lifted. But as anomaly is present only in the case of input services, the Cenvat credit of service tax paid on the input services alone should be allowed alongwith benefit of abatement under Notification No. 01/2006-ST.
However,
for the time being the above situation is resolved, it will be better for main service provider to do a proper analysis whether to go for abatement or to go for credit scheme. On analysis, it is possible that Credit foregone may be more than Abatement and it will be a profitable decision to go for credit scheme. For eg. In case any composite services
provided, they may be paying service tax by claiming abatement at the rate of 40%, however if analyzed, there may be position where the benefit of CENVAT foregone may be actually more than 40%. It is possible
in cases where there may be inputs, input services and also capital goods which are directly used in or in relation to providing output service. However, the above is to be properly studied on a case by case basis.
CONCLUSION:
It
is certainly not the intention of the government to levy tax on tax. However, the exemption notification is like a medicinal preparation which has its side-effects if proper mix is not maintained. Here also, the abatement scheme was intended to benefit the service providers with lowest cost of maintaining the documents regarding the materials used in
providing services. However, the conditions were inserted without due diligence. As such, the benefit has gone against intention of law makers
with increase in cost to the service providers. The only solution is to
remove this anomaly and for this the sufferers are looking forward to the upcoming budget.
Negative List - Whether Positively Set For The Same?
MARCH 13, 2012
By CA Pradeep Jain, CA Preeti Parihar & CA Nishit Shah
“THE best things in life are free, but sooner or later the government will find a way to tax them”. This
is proved again and again by the government. This time also, government
has found a new way in form of negative list of services whereby all the services will come under service tax net unless specifically excluded. CBEC issued a first concept paper for discussion on negative list of services in August 2011. Thereafter receiving feedback from stakeholders; Board issued another revised concept paper on November 18,
2011 making changes as per feedback received. The concept of taxing services based on negative list is a good concept, since the twin objective of widening the tax base and also base for introducing a comprehensive GST will be achieved. Government is positively mulling to introduce GST in the current budget; this article sets to find out what problems can be encountered and whether we are positively ready for the Taxation based on Negative List.
The following are the issues that need to be addressed before taking big leap towards GST:
Framework for Negative list
The
first and foremost issue that needs to be addressed is the required framework for Negative list, the required framework in this context means the knowledge on the part of assessee as well as departmental officers, staff to compensate with the increase work, basic knowledge on
part of assessee who will be required to register themselves. For eg. in the last budget, restaurant services (having permission to serve liquor) has been brought in to the net of taxation with abatement, in the negative list, it is also proposed to brought rail services and traveling by A/c under the service tax net, now if the food is served during that service who will be liable to pay service tax on the same i.e IRCTC or the contractor, will the abatement be available or not etc.
are the issues to be answered. Moreover this is only an example of one service, there are numbers of untapped sectors in service which would be
effectively brought in to the service tax net by way of introduction of
Negative list, but the proper framework and knowledge on the part of departmental officers as well as assessee is required. There may be a case where assessee shall not be aware that he is liable to pay service tax but department will issue SCN and poor assessee will be required to pay the same with interest. Thus the idea here is to give proper knowledge and training to both department as well as assessee before moving towards negative list of taxation.
Classification
Under
the existing system of taxation by way of positive list, each type of taxable service is separately classified and defined. Classification increases the certainty and removes ambiguity regarding the taxability or otherwise of a particular type of service. It is even easier to provide the exemption as the similar nature services are grouped under one head. Under present system, more than 100 services are classified separately.
In
the proposed system, the service tax law is going to change drastically
as except the services specifically excluded; all the others will come under the service tax net. In the draft paper, the negative list is provided under following six heads - (i) provided by specified persons, (ii) Social welfare and public utilities, (iii) Financial Sector, (iv) Transport, (v) Construction & Real Estate, (vi) Education, (vii) Health and (viii) Others. From this classification, it seems that the services are going to get classified under these eight heads. The services provided by specified persons as listed will not be taxable, however, if provided by any other person will be taxable unless it falls
under any other head out of remaining 7 heads. The residual head is kept with the aim of covering all types of the services prevailing in the market. This classification is done perhaps for the purpose of determining the tax rates and for the purpose of granting the exemptions. But how beneficial will be this classification, it will depend on the implementation of the proposed system.
Different rates of taxes
Besides
the basic rate of service tax, an option is being given to the assessees wherein they can pay the service tax at a different rate as prescribed in respect of certain services. Some of them are as follows -
++ WCS - For composite contract rate is 4% of the gross amount charged for works contract
++ For sale and purchase of foreign currency - 0.1% of gross amount exchanged
++ Life Insurance services - 1% of the gross amount of premium charged
The
above different rates were prescribed by analyzing the needs of the particular service sector. These were introduced as an option to the service providers. It is worthwhile to mention here that though these rates are optional, most of the service providers have opted for it. Thus, these rates are proving more beneficial than standard rate to these service providers.
However,
in the negative list released by the government, there is no mention of
services for which different rates are prescribed. Implementation of negative list is a step towards betterment; as such it is necessary that
the favourable things of the present system should be carried forward. So, the similar optional rates should also be prescribed by way of notification. If it is not done it will mean that all the services would
be charged at the same rate. Thus, this aspect also needs to be addressed in the budget itself rather than issuing notification after 2 -
3 months, when it comes to the knowledge of the board.
Exemptions in services
In
the current framework exemption has been provided to many services in their sub - head itself for eg. In commercial training or coaching service, exemption has been provided to vocational training / recreational institute, but in the negative list draft no specific exemption has been provided to it. Similarly in the business auxiliary services, vide notification no. 14/2004 - ST exemption has been
to provided to a client by any other person in relation to the business
auxiliary service, in so far as it relates to
++ Procurement of goods or services, which are input for client
++ Production or processing of goods for, or on behalf of, the client
++ Provision of service on behalf of the client
++ A service incidental or auxiliary to any activity specified in (a) to (c) above,
And provided in relation to agriculture, printing, textile processing or education, from the whole of service tax leviable.
However,
in the proposed negative list, since the services are not defined individually; it is not possible to give the exemption in relation to it
separately. Further, to redefine all the existing exemptions under one head is going to be difficult task as it is expected that the ongoing exemptions will find place in the new scheme. This expectation is fair also as the proposed scheme of negative list is widening the scope of service tax, so due place should be given to the existing exemptions also.
Abatement
There
are a number of services where both material and service element is involved in the gross amount received from client. Since service tax is levied on the service component, government has given option to segregate the material component therefrom. If the invoice of material supplied is separately billed, the service provider can pay service tax on the service portion only as per notification no.12/2003-ST dated 20.6.2003. Where the segregation of material component is not possible, the service provider can claim abatement at prescribed rates as per notification no. 01/2006-ST dated 1.3.2006. However, the rates of abatement are different for different category of services, for eg. in GOODS TRANSPORT AGENCY rate of abatement is 75%, while in RESTAURANT SERVICES abatement is 70% and in HOTEL SERVICE abatement of 50% is available, and similarly construction service, rent - a -cab etc. different rates are prescribed. These rates are based upon the detailed analysis of each service sector. The difference in rates is due to the fact that material component used varies from service to service. These abatement rates are decided after considering this factor.
In
the draft released, there is no mention of abatement scheme. Whether it
will be available or not is not ascertainable. If the abatement will be
available, how the rates will be decided? In the existing system, the different types of services were classified separately; so prescribing the abatement for it was an easy job. However, in the proposed system, since there will be no particular category for each type of service, how
the abatement rates will be specified? The grouping of services for the
purpose of abatement will be the only option and due care will be required for the same as the chances of ignoring some services will be high. The government shall have to curb this by way of notification at the time of introduction of negative list.
Import and export of services:-
Import
and export of services have shown significant rise in the last few years. Government has also framed a no. of policies for the same. Under existing system, the export of services and import of services rules have been issued separately wherein all the taxable services have been grouped under three lists after considering their nature. Different criteria have been mentioned under each list. If the service falling under the respective list satisfies all the criteria mentioned therein, it will constitute the export or import of that service. Thus, all the taxable services have been classified in three lists with different criteria laid therein. But the proposed negative list system does not specify anything regarding the export and import of services. The negative list excludes certain services under eight classifications, so whether the new rules for import or export of services will be based upon these eight heads or in some other manner. In the existing system, this classification was quite simple as each service is specifically defined, so it was easy to lay down the conditions for the same. However, in absence of specific description of the nature of services taxable, framing the import-export rules for services is going to be a tough job for the government. This is an important factor that needs due
attention as the role of import and export of services is showing a significant growth in previous few years.
Conclusion:
Thus,
there are host of issues that needs to be tackled before moving forward
with the negative list. It is indeed a good move on the part of government to go forward with the negative list of taxation but it needs
to take precaution and move carefully in larger interest of both government itself and stakeholders.
The ICAI along with persons nominated by the Ministry of Human Resources Development (HRD) has presented a report on implementation of Accounting Standards in educational institutions of Department of Higher Education to Shri Kapil Sibal, Hon’ble Minister for HRD, Government of India. The report has been presented considering different accounting and financial reporting practices being followed by educational institutions in India. It has been recommended that all educational institutions should be mandated to apply accrual basis of accounting and Accounting Standards issued by the ICAI should be made mandatory to educational institutions
Only the lessee can be treated as owner of the asset in case of a finance lease; it is he who is entitled to claim depreciation as per law; no depreciation can be allowed to the lessor in such a case of a genuine finance lease - INDUSIND BANK LTD. v. ACIT [2012] 19 taxmann.com 173 (Mumbai - ITAT) (SB)
Where assessee-company has received rental income from house property which has been constructed from borrowed funds and outstanding borrowings are converted into deep discount debentures, annual proportionate amount payable of discount charges (i.e., difference between maturity value and issue price of deep discount debentures) is allowable under section 24(b) in computing interest from house property - LITOLIER PROPERTIES (P.) LTD. v. ITO [2012] 19 taxmann.com 162 (Mumbai - ITAT)
The former part of proviso to section 92C(2) talks of Arm's Length Price as arithmetical mean of such prices and later part of proviso refers to five per cent of such arithmetical mean; word 'such' arithmetical mean brings focus back to price. Thus prescription of this proviso makes it clear that plus/minus five per cent is on price and not on profit embedded in such price - DCIT v. ROCHE DIAGNOSTICS INDIA (P.) LTD. [2012] 19 taxmann.com 172 (Mumbai)
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Only the lessee can be treated as owner of the asset in case of a finance lease; it is he who is entitled to claim depreciation as per law; no depreciation can be allowed to the lessor in such a case of a genuine finance lease - INDUSIND BANK LTD. v. ACIT [2012] 19 taxmann.com 173 (Mumbai - ITAT) (SB)
Where assessee-company has received rental income from house property which has been constructed from borrowed funds and outstanding borrowings are converted into deep discount debentures, annual proportionate amount payable of discount charges (i.e., difference between maturity value and issue price of deep discount debentures) is allowable under section 24(b) in computing interest from house property - LITOLIER PROPERTIES (P.) LTD. v. ITO [2012] 19 taxmann.com 162 (Mumbai - ITAT)
The former part of proviso to section 92C(2) talks of Arm's Length Price as arithmetical mean of such prices and later part of proviso refers to five per cent of such arithmetical mean; word 'such' arithmetical mean brings focus back to price. Thus prescription of this proviso makes it clear that plus/minus five per cent is on price and not on profit embedded in such price - DCIT v. ROCHE DIAGNOSTICS INDIA (P.) LTD. [2012] 19 taxmann.com 172 (Mumbai)
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F No automatic compounding of offences u/s. 138 of NI Act, 1881 : Provisions applicable to mode and manner of compounding under Crl. P. C. 1973 applicable : JIK Industries Ltd. v. Amarlal V. Jumani p. 223
HIGH COURT JUDGMENTS
F Limitation for offences u/ss. 63 and 628 of 1956 Act starts from date of knowledge of making misstatement in prospectus and filing of balance-sheet and not from date of issue of prospectus : Ajay Jain v. Registrar of Companies NCT of Delhi and Haryana (Delhi) p. 164 F Complaint for offence of misstatement in prospectus filed within three years from date of filing balance-sheet is within period of limitation : Kuldeep Kumar Kohli v. Registrar of Companies for Delhi and Haryana (Delhi) p. 167 F Whether directors resigned from post or not before filing of complaint u/ss. 62, 63 r/w ss. 68 and 628 of 1956 Act, being question of fact to be decided on trial : Kuldeep Kumar Kohli v. Registrar of Companies for Delhi and Haryana (Delhi) p. 167 F High Court to quash complaint u/ss. 62, 63 r/w 68 and 628 of 1956 Act only if ingredients of offence not disclosed or complaint is mala fide : Kuldeep Kumar Kohli v. Registrar of Companies for Delhi and Haryana (Delhi) p. 167 F Oppression by itself ground for winding up : Allotment of additional shares to two shareholders to exclusion of others, oppressive : Vijay Kumar Narang v. Prakash Coach Builders P. Ltd. (Karn) p. 176 F Benefit of notification permitting remission of duty on transfer of property pursuant to scheme of amalgamation of merger or demerger not applicable to State of West Bengal : Emami Biotech Ltd., In re. (Cal) p. 212
STATUTES AND NOTIFICATIONS
Rules : F Foreign Contribution (Regulation) Rules, 2011 : p. 139
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The Finance Bill 2012 was introduced today, 16.3.2012, in Parliament. This is an optimized copy, dealing only with the Direct Taxes aspect of the Bill.
TIOL Reports : RULE 14 of the CCR, 2004 has been amended and for once it is for the good of the assessees –
The Rule as it stands reads –
“14. Recovery of CENVAT credit wrongly taken or erroneously refunded .- Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest
shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.”
The small conjunction “or” was the reason for years of debate.
The CBEC had vide Circular No. 897/17/2009-CX., dated 3-9-2009 clarified that in the light of clear and unambiguous provisions of Rule 14 of the CENVAT Credit Rules, 2004, the interest shall be recoverable when credit has been wrongly “taken”, even if it has not been utilized.
The Punjab & Haryana High Court in the case of Ind-Swift Labs [2009-TIOL-440-HC-P&H-CX] had held that under provisions of Rule 14 of CENVAT Credit Rules, 2004, interest cannot be claimed from the date of wrong availment of credit; it is required to be paid from the date it is wrongly utlilized.
In departmental appeal, the Apex Court vide its judgement dated 21-2-11 in Civil Appeal No. 1976 of 2011 [2011-TIOL-21-SC-CX ] set aside the aforesaid order of High Court by holding that – “ interest is payable from the date of taking credit, not utilizing it ”. The Supreme Court ruled that “if the aforesaid provision is read as a whole we find no reason to read the word “OR” in between the expressions â€taken or utilized wrongly or has been erroneously refunded' as the word “AND”. On the happening of any of the three circumstances such credit becomes recoverable along with interest.”
Never before has any departmental Circular been issued with amazing speed as Circular no. 942/3/2011-CX dated 14.03.2011 communicating the “favourable” decision and exhorting officers to take
immediate action to safeguard revenue.
Now, that is all history!
The magnanimity of the Central government is evident by the amending notification 18/2012-CE(N.T), dated 17 th March, 2012 and made effective as far as rule 14 is concerned from 17 th March, 2012 itself.
It reads –
“ (a) for the words “taken or utilised wrongly”, the words “taken and utilised wrongly” shall be substituted.
So, now, the “AND” or “OR” dispute fades into oblivion!
Rule 7 of Cenvat Credit Rules, 2004 is being substituted w.e.f 01.04.2012 to suffocate Input Service Distributors
By TIOL
RULE 2(m) of CCR, 2004 defines “Input Service Distributor” thus –
"input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;
Probably mathematicians rule the roost in the TRU. Almost all the CENVAT rules which extend any benefit to an assessee are to be worked mathematically. Take a look at the new rule 7 of
CCR, 2004 concerning “Input Service Distributors”.
Notification 18/2012-CE(NT) dated 17.03.2012 substitutes the current rule 7 of the CCR, 2004. The new rule 7 of CCR, 2004 comes into effect from 01.04.2012 and would read thus –
"7. Manner of distribution of credit by input service distributor. – The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely:-
++ The credit distributed against a document referred to in rule 9 does not exceed the amount of
service tax paid thereon;
++ Credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed;
++ Credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and
++ Credit of service tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates.
Explanation
1. - For the purposes of this rule, “unit” includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise.
Explanation 2. - For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5.”
The computation of “total turnover” is laid down in the new rule 5 which too has been substituted by the captioned notification 18/2012-CE(NT) and the same is defined thus –
“(E) “Total Turnover” means sum total of the value of –
(a) All excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
(b) Export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and
(c) All inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed.”
The above amendments could possibly have been influenced on account of the fact that the department was on the verge of losing several cases – at least the future would be
secured!
Take a look at some of the CESTAT decisions in this regard where it is held that -
ST - Head Office as Input Service Distributor distributing service tax paid on Input services - there is nothing in law which requires that input Services ought to have been used in factory where credit is taken - Stay granted: CESTAT
Nonetheless, the CESTAT had in the case of Mahindra & Mahindra Ltd. vs. CCE, Pune-I 2011-TIOL-1581-CESTAT-Mumalso held thus -
“Purpose of providing input service tax distribution is in context of 'common services' availed by
various units of single corporate entity - It is not mechanism for transfer of credit from one unit to another - If the appellant wanted such facility, then they should registered themselves as a Large Tax Payer unit and only when they register as a Large Tax Payer unit, they could transfer credit from one unit to another - Pre-deposit ordered: CESTAT”
Be that as it may, since the definition of “unit” is inclusive in nature, it would include the â€office premises' also and this can lead to unwarranted dispute.
So, after rule 6 of the CCR, 2004, it is time for Rule 7 to see some action in the days to come!
"A comprehensive analysis of the Recommendations of the Parliamentary Standing
Committee on Finance on Direct Taxes Code Bill Showing:
• What the Direct Taxes Code originally proposes
• What Standing Committee now suggested
• What are the implications of the recommendations of the Standing Committee
For more information http://www.goo.gl/AI4CZ or call us at 011-45562222"
It appears that owing to a heavy surge of traffic, our regular website is not accessible. We do apologize for the inconvenience. We have made alternate arrangements for you to download the Finance Bill 2012.
The Finance Bill 2012 was introduced today, 16.3.2012, in Parliament. This is an optimized copy, dealing only with the Direct Taxes aspect of the Bill.
It appears that owing to a heavy surge of traffic, our regular website is not accessible. We do apologize for the inconvenience. We have made alternate arrangements for you to download the Finance Bill 2012.
The Finance Bill 2012 was introduced today, 16.3.2012, in Parliament. This is an optimized copy, dealing only with the Direct Taxes aspect of the Bill.
F Where sale of scrap not connected with manufacture, section 206C(6) not attracted : Navine Fluorine International Ltd. v. Asst. CIT (Ahmedabad) p. 481 F If eligible business only source of income of assessee, loss from initial AY to be brought forward and not loss of earlier years. set off against income : Asst. CIT v. Eveready Spinning Mills Ltd. (Chennai) p. 491 F Bank guarantee commission, not "commission" on which tax deductible at source : Kotak Securities Ltd. v. Dy. CIT (Mumbai) p. 495 F Where cost of goods said to be removed without payment of duty recorded in books not a case of undisclosed investment, addition for profit on sales of such goods proper : Ashok Pan Products P. Ltd. v. Asst. CIT (Lucknow) p. 505 F Where payee an income-tax payer whose PAN available on record of authorities, disallowance of payment not justified : Ashok Pan Products P. Ltd. v. Asst. CIT (Lucknow) p. 505 F Appeal to Appellate Tribunal : Where no facts on record to show bona fide delay, delay not condoned : Asst. DIT v. India ITME Society (Mumbai) p. 519 F Stamp duty charges on registration of lease deed is capital expenditure : Asst. CIT v. Maersk Global Service Center (India) P. Ltd. (Mumbai) p. 541 F International transactions : CIT(Appeals) not bound to consider whether comparable cases cited by assessee were applicable : Asst. CIT v. Maersk Global Service Center (India) P. Ltd. (Mumbai) p. 541
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Citizens have a right to know irregularities in banks from RBI, rules CIC
March 14, 2012 01:10 PM |
Moneylife Digital Team
Coming down heavily on the RBI, the central information commissioner under the
RTI Act, said the idea put forward by the central bank that citizens are not
mature enough to understand and will panic and harm their own interests, is
repugnant to democracy
In what could possibly be a path breaking and a most important decision, Central
Information Commissioner (CIC) Shailesh Gandhi has ruled that citizens have a
right to know about the functioning of banks including any regulatory lapses.
"If there are irregularities in the functioning of a bank pursuant to which
action has been taken by the Reserve Bank of India (RBI), citizens certainly
have a right to know about the same," the CIC said in a recent order.
While allowing the appeal filed by Ashwini Dixit, the CIC asked the central bank
to provide information regarding action taken by the RBI against scams/economic
inconsistencies of United Mercantile Cooperative Bank (UMC Bank) along with the
daily progress reports.
Mr Dixit, a resident from Kanpur, has sought information regarding the UMC Bank.
He asked the RBI to provide...
1. Action taken by RBI against scams/economic inconsistencies of United
Mercantile Cooperative Bank (the "Bank") along with daily progress reports.
2. Number of extension counters which can be opened by the Bank—as authorized by
the RBI along with details of expenditure incurred in opening the same. Did the
Bank adopt any tender procedure in relation to such counters? If yes, provide
description of such tenders.
While the public information officer (PIO) from RBI admitted that it had done an
inspection of the UMC Bank, it refused to share details of the report citing
Sections 8(1)(a) and (e) of the RTI Act.
Not satisfied with the reply from the PIO, the appellant (Mr Dixit) approached
the CPIO and the Information Commission. The Commission, said, while information
sought under query 2 has already been provided, it will decide whether the
information sought in query 1 is exempt from disclosure under Sections 8(1)(a)
and (e) of the RTI Act.
The central bank submitted that the information sought is based on the scrutiny
conducted by the RBI in exercise of its powers under Section 35(1A) of the
Banking Regulation Act, 1949 (the BR Act) and disclosure of inspection reports
and the information submitted to the RBI or collected by the RBI in terms of
Section 27 of the BR Act would be detrimental to the interest of depositors,
public and banking policies.
However, the CIC said this provision appears inconsistent with the RTI Act. He
said, "This (exemption sought under the BR Act) is prima facie inconsistent with
the RTI Act, which mandates disclosure of information unless exempted under
Sections 8 and 9 of the RTI Act. Therefore, in accordance with Section 22 of the
RTI Act, the Commission holds that the provisions of the RTI Act shall override
the provisions of the BR Act as regards furnishing information."
The Commission also observed that the RBI has sought a stay on the orders issued
by the CIC in several matters from the high courts and obtained an ex-parte
interim stay in seven matters. The RBI said since the seven matters are related
with whether inspection reports are protected from disclosure under Section 8 of
the RTI Act, has not been conclusively determined and are pending before the
courts, the multiplicity must be avoided to the extent possible as a matter of
public policy.
After perusing the stay orders, the CIC found that all the matters cited by the
RBI do not pertain to the specific issue of protection of inspection reports
under Section 8 of the RTI Act and the central bank also had not provided
evidence about the specific issue. "The Commission is a statutory authority set
up specifically for the purpose of adjudicating on matters relating to the RTI
Act. Given the above, the Commission must continue to discharge the duty placed
upon it and authoritatively resolve issues arising under the RTI Act," Mr Gandhi
said.
In its submission, the RBI said that any misreading or out of context
appreciation of the observations made in the inspection reports may be hazardous
and lead to cascading effect on all other entities which may have exposure to
such bank or share business relations with such bank. "The consequences may be
irreversible and may result in dilution of confidence of the banking system. The
adverse market reactions to such sensitive information may be phenomenal and may
be of systemic risk to the economy, banks being the backbone of the economy," it
added.
The central bank also cited a ruling by Punjab & Haryana High Court in the RBI
vs Central Government Industrial Tribunal that was used by the full bench of the
CIC in the RR Patel vs RBI case. The CIC said that the full bench was of the
that if RBI concluded that disclosure of inspection reports would adversely
affect the economic interests of the state, the said information may be denied
under Section 8(1)(a) of the RTI Act and there is no observation that the Full
Bench had come to this conclusion by itself.
Further the observations of the Punjab & Haryana HC in the RBI vs Central
Government Industrial Tribunal were made much before (on 7 May 1958) the advent
of the RTI Act and, therefore cannot be a guide for deciding on the
applicability of exemptions under the RTI Act.
The RBI argued that it did not wish to share the information sought as some of
it could "adversely affect the public interest and compromise financial sector
stability". The RBI was unwilling to share information which might bring out the
"weaknesses in the financial institutions, systems and management of the
inspected entities". It further contended that "disclosure can erode public
confidence not only in the inspected entity but in the banking sector as well.
This could trigger a ripple effect on the deposits of not only one bank to which
the information pertains but others, as well, due to a contagion effect".
However, this argument did not find any favour from the CIC and instead
attracted strictures. The CIC said, "It appears that the RBI argued that
citizens were not mature enough to understand the implications of weaknesses,
and the RBI was the best judge to decide what citizens should know. Citizens,
who are considered mature enough to decide on who should govern them, who give
legitimacy to the government and framed the Constitution of India must be given
selective information about weaknesses exposed in inspection to ensure that they
have faith in the banking sector. They must see the financial and banking sector
only to the extent which RBI wishes."
"It follows that if the RBI made mistakes, or there is corruption, citizens
should suffer. This appears to go against the basic tenets of democracy and
transparency. The idea that citizens are not mature enough to understand and
will panic and harm their own interests, is repugnant to democracy. The case for
transparency is that when citizens are watching and monitoring Institutions,
they are forced to be on their toes, and will continuously improve," Mr Gandhi
noted.
Maintaining that the Commission is a quasi-judicial body responsible for appeals
and complaints arising under the RTI Act, the CIC said, it cannot abdicate its
responsibilities under the RTI Act to the RBI on the ground that the latter is
an expert body.
Section 8(1)(a) of the RTI Act exempts—"information, disclosure of which would
prejudicially affect the sovereignty and integrity of India, the security,
strategic, scientific or economic interests of the state, relation with a
foreign state or lead to incitement of an offence".
Mr Gandhi, in his ruling said, "This bench is unable to understand how
disclosing information about the action taken by the RBI against scams/economic
inconsistencies of the UMC Bank along with the daily progress reports would
affect the economic interests of the Indian nation. Financial stability of a
nation cannot lie solely on public confidence in banks/financial institutions,
and certainly not where banks/financial institutions holding public funds are
involved in irregularities.
"This bench is not convinced with the argument that disclosure of information
would lead to any harm to the economic interests of India; in fact it would help
to improve the fundamental strength of the economic foundations of the country
and safeguard against sudden disruptions, which could be caused if all the
information was not available to public. This bench therefore cannot leave such
a decision to the wisdom of RBI," the CIC said.
In the order, Mr Gandhi said, "The Commission is of the opinion that the
information sought in query 1 is not exempt under Sections 8(1)(a), (d) and (e)
of the RTI Act, as claimed by the respondent. Even if it had been exempt,
Section 8(2) of the RTI Act would mandate disclosure of the information sought.
Citizens have a right to know about the functioning of banks including any
regulatory lapses. If there are irregularities in the functioning of a bank
pursuant to which action has been taken by RBI, as sought in query 1, citizens
certainly have a right to know about the same. A larger public interest would be
served by disclosing this information under Section 8(2) of the RTI Act. The
nation's interest would be better served through transparency and exposure of
arbitrary, wrong, corrupt or illegal acts."
S. 129(6) of Customs Act barring ex-Members from practise before CESTAT is valid
The appellant was appointed Member (Technical) of CEGAT on 1.11.1990 and demitted office on 7.3.1993. He enrolled as an advocate with the Bar
Council of India on 18.4.1993. S. 129 (6) of the Customs Act, 1962 introduced by FA 2003 debarred ex-Members from appearing, acting or pleading before the CEGAT/ CESTAT. S. 129(6) was challenged before the High Court on the ground that (i) it was ultra vires Article 19(6) of the Constitution of India & (ii) could not apply to persons who had demitted office before the insertion of the provision. The High Court (P.C. Jain vs. UOI) rejected the plea on the ground that the restriction was to remove a perceived bias and was not unreasonable. On appeal to the Supreme Court, HELD dismissing the appeal:
The Finance Bill 2012 was introduced today, 16.3.2012, in Parliament. This is an optimized copy, dealing only with the Direct Taxes aspect of the Bill.
Removal of used capital goods - if transaction value duty is more than reversible CENVAT then pay an amount equal to DUTY - every penny counts!
By TIOL:
BY Notification 6/2010-CE(NT) dated 27.02.2010 the following proviso had made its appearance in rule 3 (5) of the Cenvat Credit Rules, 2004 -
“Provided also that if the capital goods, on which CENVAT Credit has been taken, are removed after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:-
(a) for computers and computer peripherals:
for each quarter in the first year @ 10%
for each quarter in the second year @ 8%
for each quarter in the third year @ 5%
for each quarter in the fourth and fifth year @1%
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.
There was also a sub-rule 5A in rule 3 of the CCR, 2004 which was inserted way back in the month of May, 2005 and the same read -
“(5A) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.”
Now, the Central Government feels that both the above provisions do not go hand in hand and hence notification 18/2012-CE(NT) dated
17.03.2012seeks to unify the same, but, of course,with added riders in an effort to garner revenue .
It is surprising that the powers to be view that the manufacturers who avail Cenvat Credit on capital goods are potential evaders of CENVAT and hence from times immemorial these Cenvatted capital goods have faced hurdles when they are removed from the factory after “being used”. Not to mention the Larger Bench decision in Modernova Plastyles Pvt. Ltd.[2008-TIOL-1771-CESTAT-Mum-LB] where it is held that †removal of capital goods, whether used or not, is to be done after reversal of Cenvat Credit availed '.
Anyways, coming to the recent amendment being effected w.e.f 17.03.2012, manufacturers are in for a rude shock.
The proviso clause reproduced above is being omitted and sub-rule 5A is in for a makeover. It would read thus -
“(5A) If the capital goods, on which CENVAT credit has been taken, are removed after being used, whether as capital goods or as scrap or waste, the manufacturer
or provider of output services shall pay an amount equal to the CENVAT credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT credit, namely:-
(a) for computers and computer peripherals:
for each quarter in the first year @ 10%
for each quarter in the second year @ 8%
for each quarter in the third year @ 5%
for each quarter in the fourth and fifth year @1%
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.
Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value .”
In effect, the manufacturer will have to pay - and pay dearly for the “transaction value” will always be disputed by the department.
Note that
the words “scrap” and “waste” are separated by an “ OR ” - earlier it was “ AND ”.
Is the manufacturer supposed to concentrate on his business or employ a mathematician to ensure that the calculations are equal to, or less than or more than the CENVAT availed?
By the way, what if the manufacturer sells the used capital goods for a PROFIT?
Government reinforces the â€legislative will' and overrules Vodafone and Ericsson AB decisions - ( No refund to Vodafone ?)
By S Sivakumar
IN what could be treated as a major googly, the Government has retrospectively amended Sections 2(14) and 2(47) of the Income tax Act, 1961 by introducing Explanations with effect from April 1, 1962 (the day, Income tax Act, 1961 came into effect)...
In terms of these retrospective amendments, the following explanation is being added to Section 2(14) of the Income tax Act, 1961 which deals with â€capital asset', with effect from April 1, 1962:
â€Explanation .-For the removal of doubts, it is hereby clarified that “property” includes andshall be deemed to have always included any rights in or in relation to an Indian company,including rights of management or control or any other rights whatsoever;';
In another amendment, the following explanation is being added with effect from April 1, 1962 to Section 2(47) dealing with â€transfer':
â€Explanation 2.-For the removal of doubts, it is hereby clarified that “transfer” includes andshall be deemed to have always included disposing of or parting with an asset or any interesttherein, or creating any interest in any asset in any manner whatsoever, directly or indirectly,absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether enteredinto in India or outside India) or otherwise, notwithstanding that such transfer of rights has beencharacterised as being effected or dependent upon or flowing from the transfer of a share orshares of a company registered or incorporated outside India;'.
The Government has also inserted the following Explanation s, with effect from 1 st April, 1962 under Section 9(1)(i) of the Income tax Act, 1961 :
â€Explanation 4.-For the removal of doubts, it is hereby clarified that the expression “through”shall mean and include and shall be deemed to have always meant and included “by means of”,“in consequence of” or “by reason of”.
Explanation 5.-For the removal of doubts, it is hereby clarified that an asset or a capital assetbeing any share or interest in a company or entity registered or incorporated outside India shallbe deemed to be and shall always be deemed to have been situated in India, if the share orinterest derives, directly or indirectly, its value substantially from the assets located in India.';
The implications arising out of these retrospective
amendments are that, the law laid down by the Supreme Court in the Vodafone case, would stand statutorily overruled, on a retrospective basis. It was widely expected that the Government would not go for a retrospective amendment, but only a prospective amendment, if at all. What has now come out from the Government's stead is a totally unexpected retrospective tax proposal, aimed at scuttling a decision of the Apex Court.
The story of major retrospective direct tax amendments, to overcome unfavourable decisions does not end here. In another equally important retrospective amendment effective from 1 st June, 1976, the Government has also amended Section 9(1)(vi) of the Income tax Act, 1961 by inserting the following Explanations:
â€Explanation 4.-For the
removal of doubts, it is hereby clarified that the transfer of all or anyrights in respect of any right, property or information includes and has always included transfer ofall or any right for use or right to use a computer software (including granting of a licence)irrespective of the medium through which such right is transferred.
Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes andhas always included consideration in respect of any right, property or information, whether ornot-
(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or
information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6.-For the removal of doubts, it is hereby clarified that the expression “process”includes and shall be deemed to have always included transmission by satellite (includingup-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by anyother similar technology, whether or not such process is secret;'.
The issue involving the taxation of income of non-residents, arising out of the supply of software licenses has been a highly litigated matter. Very recently, the Karnataka High Court had
taken the view, in the Samsung case that, payments for import of shrink wrapped software packages are taxable in India and consequently, the Indian importer would have to deduct tax at source. The Delhi High Court however, in the Ericsson AB case, had taken a contrary view that, such payments are not taxable in India. Interestingly, the Bombay ITAT, in the Solid Works Corporation case had taken the view that the Delhi High Court decision would prevail over the decision of the Karnataka High Court. This has clearly been, not to the liking of the Government, which has settled the matter once and for all, by going for a retrospective amendment effective June 1, 1976. The petitioners have already gone to the Supreme Court asking for the Samsung decision of the Karnataka High Court to be quashed, by this now seems to be academic.
Before parting…
I am not against the Government reinforcing the will of the â€legislature' by amending the tax provisions, when it feels that the Courts have not rightly interpreted the law. This is especially so in the Vodafone case, where the Apex Court has clearly expressed its view that, in the absence of clarity (in respect of indirect deemed accrual of income) in the law, it could not interpret the law otherwise. But, to retrospectively amend the law going back to 1962 and 1976 is clearly obnoxious. The tax payer, whether in India or outside India, cannot be made to suffer for lack of clarity in tax provisions created by the Government itself, in the first place.
The retrospective amendment to Section 9(1)(vi) would come as a big blow for software importers, who have been
expecting that that the Supreme Court would overrule the decision given in the Samsung case.
There can be little doubt that, these retrospective amendments could do a lot of damage to the so-called stability of the tax regime in India, as perceived by the foreign investors and foreign service providers.
For most of us, tax practitioners, Section 9 has been â€the' Section of the Income tax Act, 1961. This is one Section on which tons and tons of views have been expressed, in respect of which numerous case laws are available and, more importantly, this is one Section which has been feeding most of the big time Consultants and Lawyers. The Government would seem to have the final laugh, after all. Our beloved Section 9 will never be the same.
(The Author is Director, S3 Solutions Pvt Ltd, Bangalore)
Regarding mix-up of sending old 2009 bulletins, I sincerely apologise.
Following are the excerpts with Mr. Mahalingam R, who forwarded
the bulletins. It was already 6 p.m. Sensing that most would be leaving their office, and any delay would result in missing these, I clicked forward button. That is what Mr. Mahalingam said :
" I thought you are asking previous year analysis.... sorry for the inconvenience. "
Regards
Mahalingam R
From: Rebecca Andrews
<rebecca.andrews88@...> To: maha_r79@... Sent: Friday, 16 March 2012 6:38 PM Subject: Why did you play this hoax ?