Pre-Deposit - Duty or Penalty or Both?
MARCH 12, 2012
By Arbind Aggarwal
I would like to see some changes in the existing rules/acts. I would like that the rules should be made in such a manner that limits/decreases the scope of litigation.
A. Government may consider limiting the %age of credit (as was done earlier when credit was restricted to 95%) but credit should be allowed on all the inputs/capital goods and services received in the business and which are allowed as expense under Income Tax Act. This would reduce litigation and would give certainty.
B. Rules should be amended (Calcutta HC has alreday stayed) to not to allow CAG to visit private businesses for annual audit.
C. Refund of Cenvat credit to STPI units - requirement of certificate from statutory auditors should be amended to include auditor under any statute including State VAT Acts. The same is applicable for SAD refunds (even cost accountants are allowed to issue certificates). It will reduce transaction cost and time both.
4. Classification of goods should be uniform in Customs, Central Excise, CST and VAT.
5. Income Tax slabs for individuals needs change so as to result in more tax on those who earn more.
| upto 250000 | nil |
| 250000 to 500000 | 10% |
| 500000 to 1000000 | 20% |
| 1000000 and above | 30% |
6. Qualifying amount under 80C should be raised to 500000 or may be to 1000000 (contribution to New Pension Policy Fund, PF, Small Savings - Post Office, Bank FD/RD, All Bonds, LIC and Health Premiums). When there will be incentive for depositing money in the banks/schemes, it will indirectly reduce "untaxed/un-disclosed" income and creation of black money.
7. Health and Education Fund of India - should be created and all donations to this fund should be allowed 80G exemption. It can be regulated by RBI through Banks where money can be donated directly and the same is reflected in 26AS of the PAN Holder.
8. There should be some mechnism to reduce high value cash transactions by individuals.
SERVICE TAX
1. It is suggested that all types of contracts which are taxed as works contracts under VAT be brought in the category of “works contract service”. Alternatively, benefit of composition scheme should be made available to all works contracts classified as such under VAT laws irrespective of its classification under service tax law. Rate of service tax under WCC Scheme be reduced from 4% to 3%.
2. Instead of specifically listing few infrastructure projects which are exempted for the purpose of levy of service tax, it could be provided that the notified categories of infrastructure projects would be excluded from the purview of service tax. Or infrastructure projects may be treated in the similar manner like that of exports, i.e., they may be nil rated and tax on input services may be refunded.
3. Power sector needs to be included in the list of specified infrastructure projects that are not liable to service tax particularly SOLAR POWER.
4. Maintenance and repair of infrastructure also needs to be excluded from the scope of service tax levy.
5. Section 67 of the Finance Act, 1944 be amended to provide that “value of taxable service for the purpose of service tax” shall exclude value of “sales”/”deemed sales” which has been subjected to sales Tax/VAT under law of any State Government/Union Territory.
State VAT Legislations may specifically provide that, value on which VAT is payable, should exclude that part of the value on which service tax is paid under the Finance Act, 1994.
6. It should be clearly provided in the Valuation Rules that, all statutory taxes/levies charged in terms of any local/State/Central or other Statutes, be excluded from the value of taxable services subject to the condition that the same is shown separately in the invoice issued by a service provider.
7. The definition of pure agent be simplified and modified to exclude the lines pertaining to “title of goods” and similar other requirements which are difficult to satisfy in practice.
8. In relation to sharing of common expenses, it needs to be clarified as to whether and if so, how, service tax is to be applied.
9. Registration as a service receiver, even for single transaction - The concept of casual registration on the lines of VAT laws at State level be introduced in service tax law.
10. Self-adjustment of excess service tax - In view of the fact that chances of errors or omissions have increased manifold in e-payment of service tax, it is suggested that suo motto adjustments of excess amount paid towards service tax liability be allowed without any limit in case of assesses not having centralized registration also.
11. Carry forward of excess service tax actually paid in Form ST-3 - It is suggested to incorporate a worksheet for computing the excess service tax paid which can be adjusted in the subsequent period in Form ST-3 itself.
CENVAT CREDIT RULES, 2004 (CCR, 2004)
1. Definitions of Capital Goods and Inputs - The list of “capital goods” and “inputs” eligible for input tax credit be redefined to include all the goods used for the purpose of business other than specified items on which CENVAT credit is not desired to be allowed.
2. CENVAT credit on High Speed Diesel (HSD) and Light Diesel Oil (LDO) - It is suggested that HSD and LDO should also be made as eligible inputs for the purpose of availing CENVAT credit.
3. Disallowance of credit on cement, angles, and channels etc. - The exclusion of following inputs/capital goods should be amended appropriately so as to allow CENVAT Credit on cement, angles, channels, centrally twisted deform bar (CTD) or thermo mechanically treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.
Further, the fact that significant amount of CENVAT and service tax is incurred in constructing the property, credit towards service tax and CENVAT actually paid should be allowed.
4. 100% CENVAT credit on capital goods in the year of receipt as well at par with inputs.
5. Rule 14 of Cenvat Credit Rules - Interest should be payable when the credit has been utilised. The rules should be amended from "taken or utilised" to "utilised". Rule 14 of CCR is the recovery provision for the Cenvat credit taken or utilized wrongly or erroneously refunded. Rule 14 of CCR reads as:
“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.
Drawing parallel?
Sec 35F of CEA reads as under:
“Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of Central Excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied ”
Now that the Apex Court has held that the word “OR” cannot be substituted by the word “AND”, would it suffice that the appellant deposits either the duty demanded OR the penalty levied so as to comply with the requirement under Sec 35F
6. A clarification should be issued regarding reversal of credit taken but payment is not made within 90 days as this is a business call as to what interval the payment is made between the parties.
7. The Rules be amended appropriately to provide for the transfer of credit from one unit to another unit of the same assessee as allowed to LTU.
8. CENVAT credit on imports through courier - As duty has been paid an appropriate provision may be inserted in the CENVAT Credit Rules to avail the CENVAT credit based on certified copies of such Bill of Entry.
9. CENVAT credit on endorsed Bill of Entry - It is suggested that Bill of Entry duly endorsed by non-registered traders also be considered as an eligible document for the purpose of availing CENVAT credit when the material is sent to the registered manufacturer for the purpose of conversion of material on job work basis.
10. CENVAT credit of service tax in case of pass through transactions - It is suggested that where service tax is paid on reimbursable expenses or on pass through transactions credit be allowed to the person who bears such expenses on the basis of a debit note provided by the agent mentioning the value of input service and the service tax paid thereon by the agent on behalf of the principal.
11. Interest on wrong availment of CENVAT credit - Some distinction should be made for clarical mistakes and reconciliation entries made each month.
CENTRAL EXCISE DUTY
1. Filing of monthly returns should be extended to six monthly or yearly
2. Exemption/CENVAT credit to all excisable goods used for research & development (R& D) - Considering the potential in earning foreign exchange, to reduce research cost, CENVAT credit on capital goods deployed for R & D activity installed within the factory premises or outside factory premises be allowed.
CUSTOMS DUTY
1. SAD should be exempted on all the items or credit of SAD paid should be allowed to be setoff against CST payable on sale of goods.
2. All infrastructure project imports should be exempted from customs duty and CVD, presently there are different exemptions either partially or fully are being provided – it is suggested all the infrastructure projects like power, solar, water treatment etc are exempted from all the duties through a single notification.
CENTRAL SALES TAX
1. CST Rate should be reduced to 1% as promised.
2. E-1 transaction should be properly defined to avoid litigation – when goods are supplied on “bill to –ship to” basis then it should not be disputed.
3. CST act should be amended to allien the item descriptions in HSN as is being done for Customs and Central Excise classification. The States may also be advised to adopt HSN for fixing VAT rates.
MISCELLANEOUS
1. Disparity between interest payable by assessee and Department under central excise and customs should be made uniform in place of 18% vs 6%.
2. Interest on retrospective price revision - it should be from the due date of the date of issue of supplementary invoice. Further there must be provision to refund along with interest , in case the revision is on lower side and the rates of interest should be equal for refunds also.
3. Definition of Inputs and input services needs correction "in or in relation to manufacture either directly or indirectly" should be incorporated for inputs and all services recd. in the business should be allowed as credit which are allowed as business expenditure under Income Tax Act.
