JULY 21, 2014

By Dr G Gokul Kishore

WHEN a person sits down to write an article on Budget after more than 10 days of its presentation and when he is confronted with flood of thoughts splashed across in various media and in particular in TIOL by erudite authors, the task can be no less daunting than fulfilling the expectations of millions through the Annual Finance Statement for a new government with new FM at the helm. Like FM, we shall not be swayed by less than normal monsoon or lack of industrial recovery but shall complete the task of airing our opinion, though unsolicited.

Budget 2014 will be remembered for…

First, you will remember this Budget for the attempt to undo the impact of Fiat ruling. The debate rages as to the amendment made in Rule 6 of Valuation Rules being half-hearted, the placement should not have been under Rule 6, overlap of expressions “not the sole consideration for sale…” and “no additional consideration is flowing…” and the like. Making the legislative piece as proviso instead of an explanation which would have given opportunity to extract an interpretation that the same was retrospective and applicable to past transactions as well, is also not taken kindly by the stake-holders. The tax administration perceives pro-revenue orders as source of revenue and at the same time, would like to portray itself as good Samaritan with the only motto of facilitating the trade. The result is the amendment to Rule 6 as we see today.

If the government can bring retrospective amendment to Income-tax Act covering 50 years, it just needs to take a leaf out, make unambiguous provision at the appropriate place to mitigate the woes of Fiat ruling and extend the olive branch to industry. But then, back-dated amendments are reserved for covering up lapses of bureaucracy and not for losing out revenue opportunities. The trade should voice their concern in such a manner that the remedy on excise valuation is made available by the government as is required and not as it would like to dole out.

Old habits hardly change

It was amusing to see re-introduction of six months time-limit for availing Cenvat credit on inputs and input services. As we always discuss, this amendment to Cenvat Credit Rules rips the Modvat mind-set naked - one of outright denial at the first instance and forcing the assessees to fight out at various levels to restore what is, in fact, an indefeasible and legitimate right flowing from the provisions. If almost 3 decades of operation of set off mechanism has not been sufficient to change this mind-set, one cannot but see a very bleak future in the GST regime. Assessees can well be prepared for denial of credit in such regime of the future as and when it is introduced. There have been several judicial pronouncements interpreting ‘reasonable period' for availing credit as one year. At least stipulation of one year could have been seen as less retrograde. Such fossilised amendment comes when the trade was expecting liberalisation of credit on capital goods so that it is available at one go - on receipt of the goods. One can only hope this will be rolled back in the next few months.

Tax department becomes usurious

Indian culture is rich in values and everyone is brought up with teachings which include usury is a bad practice and must be eschewed. But, revenue administration does not believe in morals as tax does not have ethical component. CBEC, by introducing provisions for charging interest at the rate of 30% in cases of delay in payment of service tax beyond one year, has now catapulted itself to the league of financial institutions and local financiers who are notorious for charging suicidal rates of interest and snuffing out lives particularly in the rural areas. The CBEC Chairperson in a press interview has reportedly clarified that the same applies only when tax is collected but not paid to the exchequer [ Business Standard , 14 July, 2014]. But this appears to be either the intention not getting translated into legislation or mis-interpretation of the provision. Next to Cenvat credit and pre-deposit, interest is a major source of revenue for the government but then, it should not have gone this far in this direction. The brain behind introducing such exorbitant interest must be admonished and the existing rate should be retained for the period after 1-10-2014 also if at all the government believes that the honest assessee entertaining genuine doubt over taxability will suffer irreparable loss.

Mother of all amendments

Introduction of mandatory pre-deposit of 7.5% or 10% for filing appeals under the provisions of Central Excise, Customs and Service Tax flies in the face of expert advice and claims of non-adversarial tax administration. Kelkar Task Force had recommended doing away with pre-deposit in respect of appeals filed before Commissioner (Appeals). There has always been considered opinion that pre-deposit provisions are generally harsh and there is lot of room to relax them. Unfortunately, the CBEC has taken a very unwise and counterproductive move of compelling assessees who dare to differ to part with monetary resources diverting them from core industrial activity. If, by tying the arms of quasi-judicial authorities and bodies to such draconian provisions, the tax administration entertains the belief that discretion will be curtailed and revenue by way of pre-deposit will enrich the coffers, the possibility of courts being burdened with waiver petitions and the quasi-judicial fora getting clogged again with appeals and directions from superior courts, should make the CBEC retrospect.

As challenge to legal validity of the proposed provisions is unlikely to yield desired result, it is advisable to petition and plead with CBEC to withdraw this amendment. The trade can also campaign for mandatory interest on such pre-deposits when the same is not returned within one month of favourable order and such interest along with pre-deposit shall be paid automatically without the assessee sending a letter as the department is in the know of disposal of cases and, therefore, should put in place mechanism whereby DR's office will communicate such orders to respective Commissioners for consequential refund. Though payment of interest does not mitigate the travails of assessees, at least it will soften the blow and provide some succour.

CBEC set to become supercop

The proposed introduction of new sections in Central Excise Act to make regulatory bodies, utility bodies and everyone else to file information returns with Central Excise Department [“Information Authority”] can only help those who consider laughter is the best medicine. Sharing of information between various agencies of government to plug evasion can be achieved by more practical and innovative methods instead of the mandating performance of ritual of filing returns. It appears that adequate attention has not been paid to the Shome Panel report (TARC Report) which has suggested better use of information and communications technology for sharing of such information drawing on best practices from various countries. Providing for penalty for failure in such cases as per the proposed provisions will only turn one department against another without any productive result either for the government or for the assessee. Evasion as a phenomenon predominantly arises due to the perception of demand being unjust and lack of reciprocity in terms of absence of tangible benefits from the government vis-à-vis taxes paid. An altogether different approach is needed in this direction but the CBEC has felt that it needed provisions similar to their counterparts in CBDT so as to have access to data parted with by assessees in confidence. It is high-time that measures are taken so that such ridiculous and archaic pieces of draft legislation do not become law.

[The author is a Senior Manager, Lakshmikumaran & Sridharan, New Delhi. The views expressed in this article are personal.]