TIOL-DDT 1922
16.08.2012
Thursday

GOVERNMENT has changed the Tariff Values as follows.

Notification No. 74/2012-Cus.,(N. T.), Dated: August 14, 2012

FTP - Areca Nuts - Minimum Import Price Increased

GOVERNMENT has increased the Minimum Import Price of Areca Nuts from Rs. 35/- to Rs. 75/- per Kilogram.

Notification No. 10 (RE - 2012)/2009-2014, Dated: August 14, 2012

Is the AAR subordinate to High Court?

IS the Authority for Advance Rulings subordinate to the High Court?

In an order delivered on 30 July 2012 - 2012-TII-04-SC-LB-INTL, the Supreme Court observed, "Under Article 226 of the Constitution, the High Court can issue writs of Certiorari and Prohibition to control the proceedings of not only a subordinate court but also of any person, body or authority having the duty to act judicially, such as a tribunal. Under Article 227 of the Constitution, the High Court has superintendence over all courts and tribunals throughout the territory in relation to which it exercises jurisdiction. Under Article 136 of the Constitution, this Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India. Hence, we have to decide whether the Authority, if not a court, is a tribunal within the meaning of expression in Articles 136 and 227 of the Constitution and whether the Authority has a duty to act judicially and is amenable to writs of Certiorari and Prohibition under Article 226 of the Constitution".

The Supreme Court answered the above doubt as, "We have, therefore, no doubt in our mind that the Authority is a body exercising judicial power conferred on it by Chapter XIX-B of the Act and is a tribunal within the meaning of the expression in Articles 136 and 227 of the Constitution".

The AAR in an order delivered just a day before Independence Day, declared its independence and the Chairman of the AAR Justice Balasubramanyan observed,

"This Authority is bound only by the decisions of the Supreme Court. The decisions of High Courts have only persuasive value. This Authority is not subordinate to any High Court for even Article 227 of the Constitution to apply. Left to myself, I have grave doubts whether the jurisdiction under Article 226 will itself be attracted".

Perhaps the Hon'ble Chairman of AAR was not aware of the decision of the Supreme Court delivered just a fortnight ago.

Please see DDT 1913 - 01.08.2012

Service Tax Valuation - Rule 2A/2C - What is Gross amount and what is Total amount?

IN DDT 1920 - 13.08.2012, we raised a question about the Gross Amount and Total Amount in Service Tax Valuation. We sent the query to four experts in the field and this is what we got.

Expert 1: There are two phrases used:

1. Gross amount

2. Total amount.

Abatement is on the Total amount and as per the explanation,"total amount" means the sum total of the "gross amount" charged and something. This something is the fair market value of all goods and services supplied under the same contract or under a separate contract. To understand the "deduction" allowed under the explanation, imagine an outdoor caterer charging some gross amount for the catering service including food. In addition, he asks someone else to supply ice creams under the same contract or under a different contract. The outdoor caterer pays Re 1 per cup towards the service charges to the ice cream supplier in addition to the cost-to-cost reimbursement for ice cream.

Now, as per the explanation,

The total amount for abatement is the gross amount plus the cost of ice creams supplied, after deducting Re 1 (amount charged for supply of ice creams - this we need to deduct because this will be included in the total amount charged by the outdoor caterer from the client)

Expert 2: Please see para 8.2.5 of education guide.xxxxxx Thus, by this proposition, the department seeks to overcome the undervaluation of goods and services, if any, on the same supplied by the service receiver to the service provider for providing the service.

To put it more illustratively, say if a service receiver provides cement to the service provider for a construction service and say the actual value of the cement is say 100 but the service receiver chooses to sell it to the service provider for 50, thereby undervaluing the cement for consequent undervaluation of the same in the construction service.

Now, by this ingenious proposition, Dept. would evaluate 100 for such cement at the hands of the service provider (being fair price) and shall deduct 50 from the same as the same is invoiced by the service receiver, which would have otherwise formed part of the value at the hands of the service provider!

Expert 3: The purpose of the Explanation could be to plug instances where the actual amount charged is less than the fair market value of the goods and services. In other words, if the fair market value of goods and services is less than the price at which these are charged, service tax would get levied on a higher value….

I've tried to analyse this, as under….

I would wonder as to how the hotelier / service provider can implement the valuation methodology prescribed by Rule 2A.

Interesting question would be..how to determine the fair market value of the services. Is this by a comparison between similar hotels, etc. which could be very complex.

Expert 4: I think the formula is not wrong. The logic behind the working, as I understand, is this - The formula seeks to arrive at the value of the service portion by prescribing an abatement from the "TOTAL AMOUNT" and which amount is calculated as mentioned in the Explanation by taking the SUM TOTAL of -

+ the gross amount charged by the service provider ;

+ fair market value of goods and services.

One may think that this would double the value and rightly so because the formula wants to take the average of the amount being charged by the service provider from his client and the value that is normally charged in the market.

However, instead of dividing this amount by the factor of ‘2', the same is presumably incorporated in the abatement factor.

I remember doing the titration experiments in chemistry where we used to find the exact amount of acid needed to neutralize an alkali using the phenolphthalein indicator. We repeat the experiment a couple of times and then take the mean reading.

A somewhat similar attempt is made in this formula to arrive at the closest ‘value of service'.

And obviously because the fair market value would be inclusive of the VAT/ST, the same is instructed to be deducted.

I presume we have a mathematician in the TRU churning out these formulae.

Service Tax Valuation - Rule 2A - Where is this Explanation? Can TRU help?

PARA 8.2.2 of the Education Guide released by CBEC states,

Important - As per the Explanation (II) to clause (ii) of rule 2A of the said Rules ‘total amount' referred to in the second column of the table above would be the sum total of gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of works contract, under the same contract or any other contract, less (i) the amount charged for such goods or services provided by the service receiver; and(ii) the value added tax or sales tax, if any, levied to the extent they form part of the gross amount or the total amount, as the case may be.

Will TRU do some research and find out where this Explanation (II) to clause (ii) of rule 2A exists. DDT could not find it. Will TRU help?

Jurisprudentiol – Friday's cases

Customs

Department agrees to pay refund consequent to appellate order, but later files review petition - Refund ordered with Interest and cost imposed on officers: HC

THE Customs Department agreed before the High Court to refund the excess fine and penalty, but the Department without refunding the amount filed a review petition before the High Court and ended up paying refund with interest and costs imposed on the responsible officers.

When an appellate authority allows an appeal filed against imposition of tax, duty, fine, penalty etc., it is the bounden duty of the assessing authority, as part of a democratic government, to refund the amounts covered by orders of the appellate authority, when appeals are allowed fully or partially. The same shall be refunded even without a formal request for the same. Certainly, on a request made for refund, the same shall be refunded immediately, failing which the assessing authority is bound to pay interest on the amount from the date when the refund became due. This position has been formally accepted by the Government of India also based on the decisions of the High Courts and the Supreme Court.

Income Tax

Whether when tax-exempt bonds were not available during entire period of six months after accrual of long-term capital gains, assessee cannot claim Sec 54EC benefits on investments made later in REC bonds - No, it can: HC

THE assessee filed its return of income claiming deduction u/s 54EC of the Act. On 22/3/2006, the assessee sold its factory building earning a long term capital gain of Rs.49.36lacs. The assessee sought to avail of the exemption from payment of tax on long term capital gain of Rs.43.36lacs u/s 54EC of the said Act by purchasing bonds of the Rural Electrification Corporation Limited ("REC Bonds").  To avail the exemption u/s 54EC, the assessee had to invest the sale proceeds in the REC bonds within six months from the date of the sale of the factory building i.e. on or before 21/9/2006. However, the assessee purchased the REC bonds only on 31/1/2007, since the bonds were not available throughout the period of six months commencing from the date of the sale of the factory by the respondents and even thereafter till the extended date of 31/12/2006 under the CBDT Circular (however, the bonds were available for a limited time during this period between 1/7/2006 to 31/8/2008). The AO disallowed the benefit of Section 54EC to the assessee on the ground that the bonds were purchased after the expiry of stipulated time period of six months.

Central Excise

Undervaluation - Assessee clearing job worked goods on challan cum-invoices and which were duty paying documents submitted along with RT-12 returns - allegation of suppression not sustainable: HC

IT could not have been inferred that there was any suppression and/ or intention on part of the respondent-assessee to evade duty. The findings and the conclusions arrived at by the Tribunal are based on relevant materials and documents on record. The findings are in the realm of appreciation. No perversity is demonstrated. No substantial question of law arises for the consideration of this Court.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day

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