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'Substantial value' from assets located in India - when does Sec 9 get triggered? - Finance Bill provides an answer (See 'Budget Run-Up') Is proposed Section 78B of FA, 1994unconstitutional? (See 'Budget Run-Up') Duty not paid - Penalty follows in all cases, suppression or not (See 'Budget Run-Up') Place of Effective Management - Finance Bill proposes change to determine resident status (See 'Budget Run-Up') Interest paid by branch of foreign bank to HO and overseas branches chargeable to tax and subject to TDS Jaitley offers minor respite on depreciation u/s 32(iia)(See 'Budget Run-Up') GTA ST is on 30 % (See 'Budget Run-Up') Bye Bye to Education (CESSES)(See 'Budget Run-Up') Dead wood & something more removed from provisions of Settlement in Central Excise & Customs (See 'Budget Run-Up') Pleasant Amendment in Section 11AC (See 'Budget Run-Up') Section 80 of FA, 1994 to fade into oblivion - a draconian step? 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Medical allowance hiked to Rs 25000 (See 'Budget Analysis') Rental income from assets held by REITs to be taxed in hands of unit holders (See 'Budget Analysis') Foreign assets purchased out of tax evaded: 10 years jail; offence made non-compoundable and 300% penalty (See 'Budget Analysis') DTC Bill killed; Many good aspects incorporated in present I-T Act Service tax Negative List to be pruned No Service Tax on Varisth Bima Yojana Transport Allowance limit hiked to Rs 1600 Sec 80CCD benefit hiked by Rs 50,000 per annum Jaitley hikes exemption limit for medi claim from Rs 15K to 25K; for Sr Citizens it is to be 30K Clean Energy Cess hiked to Rs 200/- PMT; No service tax on effluent treatment plants Service tax rate goes up to 14% but education cess gone Excise duty on cigarette and tobacco hiked; Excise registration to be done in two working days; Cenvat Credit period extended from six months to 12 months TP threshold limit hiked from Rs 5 Crore to 20 Crore; Capital gains by FIIs not to be subjected to MAT Wealth Tax to be abolished; 2% surcharge levied on wealthy SAD removed for most goods with minor exception GAAR postponed for two years; Tax rate on royalty and FTS reduced to 10% Presence of Fund Managers not to be construed as PE Capital gains regime and STT regime to be rationalised to provide pass through facility Unreported assets outside India - Govt to make it predicate offence under PMLA Black Money Bill to be tabled - 10 years jail proposed; 300% penalty; No Settlement Commission option; No deductions to be allowed; even banks and companies to face prosecution and penalty Corporate tax rate to be reduced to 25% over four years Fiscal Deficit to be 3.9% in next fiscal HCs to have designated courts for resolution of Commercial disputes; Bill to be tabled Defence outlay hiked to Rs 2.46 lakh crore for 2015-16 Special Assistance like Telangana to be provided to Bihar, West Bengal also AIIMS to be set up in Punjab, Assam, J&K, HP, TN and Bihar + IIT in Karnataka + ISM Dhanbad becomes IIT + IIM to be set up in J & K Education Loan: Govt to set up formal platform to fund it Govt to launch National Skill Mission to enhance employability of youth Govt to go for Procurement Legislation; proposes mechanism to resolve contract disputes Govt to develop heritage sites to promote tourism FDI - Artificial distinction between FII & Portfolio Investment to go Govt to put in place New Direct Tax and Indirect Tax regime matching global standards Govt to introduce New Gold Monetisation Scheme; to introduce Indian Gold Coin with Ashok Chkra Govt to reform EPF and ESI Acts to make it more liberal Commodity Commission to be merged with SEBI Govt to set up Public Debt Management Agency to monitor borrowings Rs 5000 Cr allocated to National Infrastructure Development Fund Expert Panel to be set up to do away with prior-approval for starting business Govt earmarks Rs 1000 Cr to support tech start-ups FM allows tax-free bond option for road, rail and irrigation Investment in Infra Sector to go up by Rs 70,000 Crore; Govt to set up National Investment in Infrastructure; Govt to allocate Rs 20,000 Crore Unclaimed deposits of Rs 9000 Crore in PPF & EPF to be appropriated for Senior Citizen Welfare Fund NBFCs with Rs 500 Cr turnover to be construed as Financial Institution To improve Ease of Doing Business Index - Govt to go for New Bankruptcy Act
 
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AG's Audit Visit to Factories and Premises of Assessees?

TIOL-DDT 1776
17.01.2012
Tuesday

THE Calcutta High Court had recently passed an order restraining the Comptroller and Auditor General (CAG) of India from auditing a private enterprise. We promised to bring this order as soon as possible. We bring it to you today.

The petitioner had submitted that under the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971, audit regarding the accounts of the State and Central authorities or the State companies can be conducted and as it is evident that audit is sought to be conducted regarding a private company, that is, the writ petitioner, prayer is that an interim order may be passed.

The State submitted that since the scope of Section 16 of the said Act is wide and such enactment has been made to secure an effective check on the assessment, collection and proper allocation of revenue and as it relates to assessment of service tax, no interim order may be passed restraining the same.

The High Court held, "let there be an interim order directing that no audit be conducted by the authorities till 16th March, 2012 or until further orders, whichever is earlier"

2012-TIOL-50-HC-KOL-ST

Service Tax - Commercial Training or Coaching service –Pre-deposit - Sri Chaitanya Case - SC grants Rs 60 Cr Relief

THE Commissioner had demanded a Service Tax of more than Rs. 87 Crores and imposed a penalty of Rs. 150 Crores on Sri Chaitanya Educational Committee for the Service Tax payable for the period 2003-2007.

The Tribunal granted full waiver of pre-deposit (2010-TIOL-1306-CESTAT-BANG) on the ground of limitation till the disposal of the appeal. The Department was not impressed and took the matter to the High Court. The High Court of Andhra Pradesh has set aside the order of the Tribunal and remanded the case by holding that the Tribunal ought not to have granted the order of stay or dispensation of pre-deposit without imposing conditions. (2011-TIOL-147-HC-AP-ST)

In remand proceedings, the Tribunal again did not order any pre-deposit keeping in view the fact of attachment of property valued at Rs 27 crores can be considered as enough security to safeguard the interest of revenue. (2011-TIOL-661-CESTAT-BANG)

Against this order, the department filed appeal again in High Court. The High Court held that the order of the Tribunal granting blanket waiver of pre-deposit ex facie constituted a clear erroneous exercise of discretion, warranting interference in appeal under Section 35-G of the 1944 Act.

On behalf of revenue, it was urged that the assessee may be directed to deposit 50% of the service tax liability under Section 35 F of the Central Excise Act, 1944. Having considered the competing interests of the Revenue and the hardship that is likely to be caused to the assessee in case the entire amount of service tax and penalty is directed to be deposited, which is around Rs 240 cores (Rs 87 crores tax liability with Rs 150 crores penalty) the High Court had ordered that the assessee shall deposit 1/3rd of the amount of service tax and penalty, about Rs. 80.00 crores as pre-deposit under Section 35-F of the 1944 Act. (2011-TIOL-694-HC-AP-ST)

So, the Revenue got more than what it pleaded for. It asked for only 50 percent of 87 Crores, but it got 80 Crores!

Obviously, the party had to appeal to the Supreme Court, which it did. In the Supreme Court also, the Counsel for Revenue fairly pleaded for a pre-deposit of 50 percent of the tax and the Supreme Court allowed a pre-deposit of a third of the Service Tax demand, which would come to about Rs. 30 Crores. We bring you the Supreme Court today - 2012-TIOL-02-SC-ST

An aside: Meanwhile the Department attached the property of the assesse under non-existing rules. (Please see DDT 1747 07.12.2011). The assesse challenged this attachment also in the High Court, which was dismissed - 2011-TIOL-800-HC-AP-ST

Utilizing Refunded SAD for Duty Payment (DEPB) - Extended Again

CBEC Circular No 27/2010-Customs, dated 13.08.2010, provided the facility of manual filing of Bill of Entry for utilizing the amount of re-credited 4% CVD (SAD) refunds for payment of duty in case of re-credited DEPB/Reward Scheme scrips upto 30.12.2010. However several representations have been received from trade and industry to extend the time up to 30th June, 2011 for using re-credited 4% CVD(SAD) amount in DEPB as they have not been able to utilize the re-credited DEPB / Reward Scheme scrips within the stipulated time.

By Circular No.11/2011-Customs, dated 24.02.2011, Government had extended this time till 30.06.2011. Still there were representations that the trade could not use this facility within the stipulated time.

So, a benign Government had extended it till 15.09.2011 by Circular No. 30/2011-Cus dated 19.07.2011, with a rider that no further extension shall be given.

Now they have further extended it till 31.03.2012, with a rider that "No further extension shall be given under any circumstances."

CBEC Circular No. 02/2012-Cus., Dated: January 16, 2012

No Retrospective VAT on Lease of Taxi Cabs/ Buses

IN 2008, the cabs in Hyderabad went off the roads protesting against the notices by the State VAT department levying VAT on lease of cabs, even though they were paying Service Tax. The State Government assured the cab owners that a committee would be formed to look into the applicability of VAT on the business transactions and come out with clear-cut guidelines. If VAT is found applicable by the committee, it will be effective with prospective date to be notified.

But by Ordinance No. 7 of 2011, the State Government imposed VAT with retrospective effect from 1.4.2005. The Government's decision was strengthened by a decision of the AP High Court in 2012-TIOL-49-HC-AP-CT

The agitated Cab owners again approached the State Government. And a benign Government has decided to waive the tax till 7.11.2011.

The Government Memo states:

++ Government has noted that an element of doubt existed among the taxi cab/bus owners about the taxability of the transaction involving transfer of right to use the vehicles in view of differing Court decisions on the issue.

++ Hence keeping in view all the attendant circumstances and legal position on the issue, Government have decided, as a special case, to waive the VAT demand on transactions involving transfer of right to use taxi cabs/ buses up to 7th November, 2011 provided the vehicle owner has paid Service Tax to the Union Government and has not collected VAT from the customer (lessee/ hirer of the vehicle).

++ However, VAT should be levied and collected on all such transactions with prospective effect from 08-11-2011.

++ Cases in which VAT dues have been already paid shall not however be reopened nor the taxes refunded.

So, from 8.11.2011, they have to pay both VAT and Service Tax?

AP Government Memo No. 42596/CT.II(1)/2011-1, Dated: November 11, 2011

Please also see ST Se GST Tak

Jurisprudentiol – Wednesday's cases

Legal Corner IconCentral Excise

Addition and mixing of polymers and additives to base bitumen does not result in manufacture of a new marketable commodity: SC

IT is trite to state that "manufacture" can be said to have taken place only when there is transformation of raw materials into a new and different article having a different identity, characteristic and use. It is well settled that mere improvement in quality does not amount to manufacture. It is only when the change or a series of changes take the commodity to a point where commercially it can no longer be regarded as the original commodity but is instead recognized as a new and distinct article that manufacture can be said to have taken place.

Income Tax

Whether when assessee purchases development rights for construction project and writes off certain payments as bad debt for extra land space detected after five years, and that too without making a claim, same is to be allowed u/s 36(1)(ii) - NO: ITAT

THE assessee, engaged in construction activities, purchased development rights for its projects known as Gangotri & Yamnotri. Payments were made in this respect. Against the outstanding credit balance of Rs 90,165/- as on 1.4.2004, the payment of Rs 9 lacs was made on the ground that the excess land space utilized for the aforesaid project was required to be adjusted. In view of utilization of the land space which was very negligible, the excess amount of Rs 8,09,835/- was written off being non-recoverable with the understanding that it was on account of the cost of extra land space utilization for the aforesaid project. The profitability in respect of the aforesaid project was already offered for taxation in the earlier years. Therefore, the assessee claimed the aforesaid payments as bad debts.

Service Tax

Review by Commissioner - date of passing the order would be date on which order or decision is made public or notified in some form or when it can be said to have left adjudicator's hand - Order passed after two years, not valid: CESTAT

UNLIKE the Tribunals or the courts, where the orders are pronounced in the open court, the orders passed by a Commissioner of Customs/Central Excise as adjudicating Authority or as reviewing authority under Section 84 of Finance Act, 1994 are not pronounced in the open court. Therefore, in such cases, the date of passing the order would be the date on which the order was dispatched to the assessee, not the date on which the decisions was recorded in the review file as on this date it can be said that the adjudicating authority has ceased to have authority to tear it off and draft a different order.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

Mail your comments to vijaywrite@taxindiaonline.com

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Sub: AG audit of private companies in the name of checking revenue receipts

The Calcutta High Court has belled the cat by banning, even if for the time being, the double audit of CERA visits(along with IA of the department)and intrusive audit of private companies in the name of checking effectiveness of govt rules regarding assessment and control of revenue receipts. The CAG Act does not extend to audit of accounts of private companies. The job of visiting the excise & service tax assesees and auditing their accounts properly belongs to the central excise department only and even here this important power is absent in the Act but found only in the subordinate rules. The rules are lacking in guidelines for audit. It is an unguided power. In major VAT countries such audits are under a charter of powers and duties where the rights of the tax payers subjected to the audit are spelt out clearly. Many companies feel that as compared to CERA the departmental officers are more competent, well-informed and understand the systems and tax practices of the private sector better than the CERA. The departmental auditors sometimes pay heed to settled case laws which the CERA mostly ignores. The CERA audit is unusual when it is seen that the AG teams do not visit the assessees for audit of their private accounts in Customs, VAT and Income tax systems. In these tax cases, their audit is confined to government offices and the records kept there. It is really strange that the state of affairs continued for long decades till an intrepid company decided to take the bull by its horns.

Ravindran Pranatharthy
Advocate

Posted by Ravindran Pranatharthy
 
 
 
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