BOARD received representations regarding denial of CENVAT credit on input services in certain cases. The field formations expressed some doubts with regard to availment of CENVAT Credit on input services in certain instances.

Whether CENVAT credit can be claimed

(a) when payments are made through debit/credit notes and debit/credit entries in books of account or by any other mode as mentioned in section 67 Explanation (c) for transactions between associate enterprises; or

(b) where a service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons. 

Board examined the issues and clarified each of the above mentioned issue as follows:

(a) When the substantive law i.e. section 67 of the Finance Act, 1994 treats such book adjustments etc., as deemed payment, there is no reason for denying such extended meaning to the word ‘payment' for availment of credit. As far as the provisions of Rule 4 (7) are concerned, it only provides that the CENVAT credit shall be allowed, on or after the date on which payment is made of the value of the input service and of service tax. The form of payment is not indicated in the same and the rule does not place restriction on payment through debit in the books of accounts . Therefore, if the service charges as well as the service tax have been paid in any prescribed manner which is entitled to be called ‘gross amount charged' then credit should be allowed under said rule 4 (7). Thus, in the case of “Associate Enterprises”, credit of service tax can be availed of when the payment has been made to the service provider in terms of section 67(4)(c) of Finance Act, 1994 and the service tax has been paid to the Government Account.

(b) In cases where the receiver of service reduces the amount mentioned in the invoice/bill/challan and makes discounted payment, then it should be taken as final payment towards the provision of service. The mere fact that finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider . The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would also be altered accordingly.

In the clarification given above, it is mentioned that ‘service tax has been paid to the Government Account'. But there is no such requirement under CENVAT Credit Rules. It is enough if the payment has been made for the value of services along with the service tax. It is not his botheration to ascertain whether service tax has been ultimately paid by the service provider or not. Therefore ‘ service tax is credited to the government' is something new which the Board is perhaps trying to sneak in through a circular.

From tomorrow, Show cause Notices will fly alleging that credit was irregularly taken without ascertaining whether the service tax has been paid to the government account. And how is this to be proved? For each invoice, do you rush to the Central Excise officer with a request to certify that the tax had been paid? And will they give those certificates? And sincere field officers will confirm demands with liberal doses of penalty and interest.

After further clarifications and about six years of litigation, some court will rule that the circular is beyond the legislative jurisdiction of the Board and by that time, many officers will develop a faith that credit cannot be taken unless the service provider has paid the tax to the government account and the Board will get the law amended retrospectively. This is the legal engineering that our bureaucrats excel at.    

Circular No. 122/03/2010- ST., Dated: April 30, 2010

What happened to Circular No. 121?

BOARD has issued Circular No. 120 clarifying certain issues related to refund of excess credit by exporters on January 19, 2010 and Circular 122 i.e. the current one covered above is issued on April 30, 2010. But where is Circular No. 121 and what does it pertain to? Why is it not placed in the public domain?

Making people Pay - The Economic Sociology of Taxation

Dr. SIBICHEN K Mathew, an Additional Commissioner of Income Tax in Bangalore has written an excellent treatise on the sociology of taxation. Justice Venkatachaliah, former CJI thinks the book is eminently readable and is great intellectual effort. The scholarly work is laced with wry humour and monumental information with a few really good cartoons thrown in. Way back in the 320 BC, in the Mauryan kingdom, actors, musicians and dancing girls contributed substantially to the Revenue kit. Sibichen notes that they still do. Akshay Kumar and Shah Rukh Khan paid over thirty Crores of Income Tax. The Bachchan family has been one of the top tax paying families in the country.

He writes that tax compliance is more a matter of mind than a matter of money. Popular psyche has been ingrained over the generations with an apathy towards taxation as the same was either discriminatory or was used for selfish interests or for financing unjust wars.

He concludes with, “in this universalistic exercise of making people pay without any proportionate reciprocal benefits, the states can only cash in on people's altruistic spirit, empathy and tolerance. Such virtues will be plenty only when the exercise is fair, efficient, transparent and reasonable.

It is gratifying to note the Indian tax department has such distinguished scholars.

Today we bring you a review of the book.

Review

Export Policy for Dog/Cat Food  Amended

THE Central Government has amended the Schedule 2 (Export policy) in ITC (HS) Classification of Export/Import in relation to dog or cat food, put up for retail sale. In this regard, S. No. 71A thereof which was inserted vide Notification No. 26/2009-14 dated January 25, 2010 is substituted. Now the sentence, “Export to EU allowed subject to the following conditions” is changed to “Export of the item produced from Animal By-Products to EU is allowed  subject to the following conditions” :

DGFT Notification No.  39/2009-2014 , MAY 4, 2010

DGFT Amends Value Addition Norms

DGFT had introduced Appendix 11B related to value addition norms (below 15%) for specific products under Advance Authorization Scheme in HBP v.1 through Public Notice No. 42 dated February 16, 2010.

Now the DGFT has amended contents of S. No. 1 of Appendix 11B in the HBP v.1 as follows:      

DGFT Public Notice No. 59, Dated: May 3, 2010

Consolidated List of Default Authorized Operations for SEZs Amended

THE consolidated list of default authorized operations which can be undertaken by developer/approved co-developer by default as notified through Instruction No. 50 dated March 15, 2010 is further amended as follows:

No Tax Benefits:

It is also clarified that in terms of the existing guidelines, no tax benefits can be extended to any construction activity outside the SEZ premises including water pipeline connections from the source to the SEZ .

SEZ Instruction No. 54, Dated: April 30, 2010

Jurisprudentiol – Thursday's cases

Central Excise

Central Excise – Uttarakhand exemption – No exemption if expansion is undertaken prior to 7.1.2003, but completed after that date: High Court

THE object for granting exemptions is for alluring industrialization within the territory of the State of Uttarakhand . The incentives under reference are for establishing new industrial units and for substantial expansion of existing industrial units. The exemption under the aforesaid notifications was permissible only for such industrial units, which had undertaken substantial expansion after 07.01.2003.

Income Tax

Income tax - long-term capital gains on sale of shares, other than bonus shares - assessee's claim to benefit of indexation is in consonance with proviso to Sec 112(1): Bombay HC

THE issue before the Bench is that whether assessee's claim of computation of long term capital gains on sale of shares, other than the bonus shares, after giving the benefit of indexation is in harmony with the proviso to Sec 112(1) of the I-T Act.

Customs

Customs – T V Broadcast and studio equipment are capital goods eligible for import under REP licence in terms of Para 177 of EXIM policy 1988-91 though imported at a later date - Customs authorities directed to return ITC bonds executed by petitioners duly cancelled: Bombay High Court

THE petitioner was engaged in the business of producing advertising films, T.V. serials and documentaries and imported T.V. broadcast and studio equipments as permissible Non-OGL capital goods against a REP licence. The licence purchased by the petitioner specifically carried a flexibility endorsement under Para 177 of EXIM Policy for April 1988 - March 1991 permitting import of goods.

See our columns Tomorrow for the judgements

Until tomorrow with more DDT

Have a nice day.

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