What is Revenue foregone?
31.07.2014
Thursday
'foregone'' is a little bit of an ambiguous phrase which creates an incorrect impression.
PARTICIPATING in the debate on the Finance Bill 2014, yesterday several Members in the Rajya Sabha spoke about the huge Revenue foregone - about 6 lakh crores.
Ms Nirmala Sitharaman explained, "I would like to just give you specific details there. Direct revenue foregone figures are: direct taxes-Rs. 1.16 lakh crores, indirect taxes-Rs. 4.55 lakh crores. These are absolutely notional figures of revenue, not collected and not given aways. In indirect tax, revenue foregone of Rs. 4.55 lakh crores is due to levy of tax at the rate lower than what is approved by the Parliament. Indirect tax revenue foregone is not for the benefit of corporate, but for the benefit of common man.
I just want to inform the House that indirect tax revenue foregone comprises of the following:
• SSI exemption schemes -- No excise duty up to clearance value of Rs. 1.5 crores within a financial year.
• Area-based exemptions exist in the North-East States, J & K, Uttarakhand and Himachal Pradesh.
• Supplies to Defence sector are exempted from excise and customs duty.
• Crude petroleum is exempted from customs duty. The tariff rate is about 10 per cent.
• Free Trade Area Agreements are exempted
• Export promotion schemes are exempted.
So, all these cannot be withdrawn."
Mr.Arun Jaitley explained:
The Budget gives an exemption which is not a tax foregone. For academic reason it is written like that. Suppose the rate of tax is 60 per cent, but at that time the bound rate or the applied rate is 30 per cent; so, 30 per cent, which is the head space, is tax foregone. It does not mean that it is a concession to the corporate because if you had made the tax or excise duty on the commodity at 60 per cent, probably nobody would buy that product. Therefore, nothing would come back to you. The product itself will become costly. So, ‘foregone' is a little bit of an ambiguous phrase which creates an incorrect impression. But, these are conscious efforts to revitalize the economy, which, Governments, from time to time, give.
Finance Bill cleared by Rajya Sabha
THE Rajya Sabha yesterday cleared the Finance Bill 2014 - all that is left for it to become the Act is the Presidential approval.
The discussion in the Rajya Sabha started with strong protests from Congress Members about the absence of the Finance Minister from the house, even though the MoS Nirmala Sitharaman was present. A Congress Member said, "Sir, I strongly object to it. Unless Mr. Arun Jaitley comes, the Congress Party will not allow the debate. …. Sir, I have been in Rajya Sabha for the last twelve years. It has never happened in history. Without the Finance Minister, the Finance Bill cannot be moved. We strongly object to it and we do not accept it. That is all. You have to call him, and, then only, we shall start."
After some time the Finance Minister came into the House and explained that he was in the other house. He then moved the Bill for consideration and return. Even during the course of the debate, some Members objected to the absence of the Finance Minister. One Member even said that he is doing PR work in the Central Hall, to which the MoS strongly objected.
Service Tax - No exemption for pilot training
Mr.PRAFUL Patel had demanded in the Rajya Sabha that pilot training institutions should be exempted from Service Tax as students are going abroad for the training and the Government is releasing foreign exchange.
Responding to the request, Ms Sitharaman said, "Let this be clarified that universities established by law or universities which give certificates do not attract service taxes. However, pilot training centres do not give certificates and such institutions certainly attract service tax and on that point of clarification -- we would like to make that absolutely clear."
Union Budget 2014 PC=AJ
The eventual winners were the babus of North Block
SPEAKING on the Budget, Mr. Derek O'Brien said that PC=AJ=4.1. What does this mean? He explained.
Now what this basically means? First, let me dwell on 4.1. The Congress, a few months ago, came up with the 4.1 fiscal deficit number. The current Government has stayed with the number. And this has been an opportunity. If that number was not stayed with, this was a great chance to take some of the stress away, some fiscal space provided so that middle class could be the beneficiaries because the middle class has been suffering double-digit inflation for last six-seven years and in the last two-three years from total absence of jobs. But, maybe, the Finance Minister, in his wisdom, didn't want to go with 4.1 because he thought the markets would tank, credit rating agencies would downgrade us and corporates would find it very difficult to raise money from abroad. However, this was a golden opportunity lost because, as I said, if PC=AJ=4.1, the eventual winners were the babus of North Block.
the PC=AJ syndrome, you could also express in a more boring way, calling it ‘the Congress = the BJP syndrome'.
So, Finance bill 2014 has almost become the Act with several doubts remaining and clarifications required. Let us hope the Revenue Boards will come up with suitable remedial circulars. Unless the Stay issue is legislatively clarified, litigation will only go up - every assessee who cannot pay 7.5% can still go to the Tribunal or High Court for Stay. And the big fish who have demands running into hundreds of crores can get away with a pre-deposit of 10 crores.
Service Tax - 15 lakh returns pending corrective action - CAG
THE primary job of a tax officer is to assess the tax payable/paid by the assessees and this is one aspect grossly neglected by the Central Excise and Service Tax officers. There is hardly any scrutiny of the returns filed by the assessee.
In a recent Audit report the CAG pointed out that:
As on 31 March 2013, 14.74 lakh returns (80 per cent of returns marked for review and correction) were pending corrective action.
Nearly 50 per cent of Service Tax assessees paying revenue over Rs. 1 crore annually which were due for audit by the Central Excise and Service Tax department remained unaudited during 2012-13.
Over 2000 refund claims involving Rs.11,000 crore were pending disposal for over 1 year as of March 2013.
Adjudication cases involving Service Tax implication of over Rs. 64,599.24 crore were pending finalisation as on 31 March 2013.
Cases involving Service Tax of Rs. 1,37,950.40 crore were pending before appellate forums as on 31 March 2013.
On assessment and scrutiny, the CAG observed,
"With the introduction of self-assessment, the department also envisaged the provision of a strong compliance verification mechanism, inter alia, through scrutiny of returns. Even in the self-assessment era, the primary function of departmental officers continues to be assessment or confirmation of assessment as it is they who have a statutory liability to ensure correctness of tax payment. This is undertaken through scrutiny of Service Tax returns, which in turn are to be selected on the basis of risk parameters. The Manual for Scrutiny of Service Tax Returns, 2009 envisages that scrutiny is to be carried out in two stages i.e. preliminary scrutiny of the return which is to be carried out by ACES (Automation of Central Excise and Service Tax) application and detailed scrutiny of assessment which is to be carried out manually on the returns marked by ACES or otherwise.
Preliminary Scrutiny of Returns
The purpose of preliminary scrutiny is to ensure completeness of information, timely submission of the return, timely payment of duty, arithmetical accuracy of the amount computed as duty and identification of non-filers and stop-filers.
We observed that a very high percentage of cases, scrutinized by ACES each year is marked for review and correction; the percentage ranged between 75 and 83 per cent during FY 11 to FY 13 period. Further, the number of marked returns still pending for review and correction process as on 31 March each year has been showing a sharply rising trend; this is not a healthy sign considering the fact that mandatory electronic filing of Service Tax returns had been introduced with effect from 1 October 2011 and hence returns scrutiny through ACES should have stabilized at least by 2012-13. One of the main intentions behind introducing preliminary scrutiny online was to release manpower for detailed manual scrutiny, which could then become the core function of the Range/Group; the high figures of pendency for correction after R & C identification indicates that the same is far from being achieved. The very high percentage of scrutinized returns being thrown up for review and correction (R & C) and resultant high number of returns pending corrective action are indicative of deficiencies in the ACES application which the department needs to address urgently.
Detailed Scrutiny of Service Tax Returns
The purpose of detailed scrutiny is to establish the validity of information furnished in the tax return and to ensure correctness of valuation, availing of cenvat credit, classification and effective rate of tax applied after taking into consideration the admissibility of exemption notification availed etc. Unlike preliminary scrutiny, detailed scrutiny is to cover only certain selected returns, identified on the basis of risk parameters, developed from the information furnished in the returns submitted by the taxpayers.
It is a cause for concern that there are several selected returns pending scrutiny for periods even exceeding 2 years. Other than in certain types of cases such as those involving fraud, there is no scope for issue of a demand notice to an assessee beyond 18 months from the date of filing of returns by assessee. It is essential that the department takes steps to analyse the reasons for long pendency so as to ensure revenue due to the Government is adequately safeguarded.
When will they complete those assessments? They are all so busy with Show Cause Notices and registrations and … that they don't have time for scrutiny of returns. After all they can always blame the assessees and demand the tax for five years - for all their mistakes.
Source: CAG's Report No. 6/2014.
Jurisprudentiol - Friday's cases
Service Tax
In SCN, demand in respect of Break Bulk Fees is made under ‘transportation of goods by air service' - Appellant is not an ‘aircraft operator' so demand not sustainable - also order confirming demand under ‘Cargo Handling Service' is beyond scope of SCN: CESTAT
IN the SCN the demand of Service Tax is made in respect of BBF under ‘transportation of goods by air service'. As per the provisions of the Act, taxable service means any service provided or to be provided to any person, by an aircraft operator, in relation to transport of goods by aircraft. Admittedly, the appellants are not aircraft operators.
The adjudicating authority in the impugned order confirmed this demand under ‘cargo handling service'. The appellants were not put to notice regarding confirming the demand under the category of cargo handling service whereas in the show cause notice the demand was on the ground that the appellants were providing transportation of goods by air service.
Income Tax
Whether it amounts to concealment of income warranting penalty when legal expenses incurred to defend himself in criminal case were claimed as business expenditure but same were disallowed by Tribunal - NO: ITAT
THE assessee is a leading film actor who derives income from profession of acting and advertisement assignments. Assessee had claimed legal expenses of Rs. 12,90,000/- and Rs. 33,75,000/- in AYs 2003-04 and 2004-05 respectively which were incurred by the assessee for defending himself in various criminal proceedings pending in the court. According to the A.O., the said expenses incurred by the assessee to defend himself in criminal proceedings were personal expenses and the same therefore could not be allowed as business expenditure. On appeal, the CIT(A) deleted the disallowance made by the A.O. on account of legal expenses for both the years under consideration observing that the said expenses were incurred by the assessee for the preservation and protection of his profession from any legal process or proceedings which might have resulted in reduction of his income. On further appeal, the Tribunal, however, reversed the decision of the CIT(A) on this issue and confirmed the disallowance made by the A.O.
The issue before the Bench is - Whether it amounts to concealment of income warranting penalty u/s 271(1)(C) when legal expenses incurred by the assessee-actor for defending himself in a criminal case were claimed as business expenditure but the same were disallowed by the Tribunal. And the answer is NO.
Customs
Import of Poppy Seeds - Allegation of undervaluation - DRI has not recorded any statement of any individual who had been conduit through whom Hawala transaction took place - although prima facie there is a strong case for appellant no other option as a third Member, but either to agree with one of differing views - Pre-deposit ordered of Rs.15 lakhs: Tribunal by Majority.
BASED on intelligence that there was a huge undervaluation in imports of White and Yellow Poppy Seeds from Turkey, the DRI conducted search of the office premises of the appellant along with residential premises and incriminating documents were recovered and statements were recorded.
The investigation revealed that the appellant is a proprietary firm of Madhu Kapoor and day-to-day operations of the said firm were undertaken by Arun Kapoor, husband of Madhu Kapoor. It was further revealed by Arun Kapoor that the appellant firm had submitted forged/fabricated documents to the Customs resulting in evasion of customs duty; that the undervaluation done by them at the time of import was to the extent of 30 to 40% of the actual price; that the differential amount i.e. difference in the contract price and the value declared to the Indian Customs was paid to the overseas suppliers through unofficial channels i.e., Hawala and the modus operandi was to give the money to the person appointed by the overseas suppliers for collection from their shop.
See our Columns Tomorrow for the judgements
Until Tomorrow with more DDT
Have a nice day.
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