TIOL-DDT 2408
01.08.2014
Friday

AS per the erstwhile Section 65(12) of the Finance Act, 1994 (as amended), "banking and other financial services" inter alia included lending. Ministry of Finance vide letter F. No. 345/6/2008-TRU dated 11-06-2008 clarified that pre-closure/foreclosure charges collected for early payment of loans, are leviable to Service Tax.

The CAG's Audit pointed out that a unit in Pune I Commissionerate collected Rs. 12.38 crore on account of foreclosure charges of loans during April 2007 to March 2011, on which Service Tax amounting to Rs. 1.41 crore was not paid which was recoverable along with interest.

The Commissioner promptly issued a Show Cause Notice for recovery of nearly Rs. 1.5 Crores.

But the Board took a different view and informed the CAG that the foreclosure charges are treated as loss of interest. As interest is excluded from the levy of Service Tax, this does not amount to service as per the provisions of the Finance Act 1994. The Ministry further added that CESTAT New Delhi had taken the same view in the case of SIDBI vs CCE Chandigarh - 2011-TIOL-581-CESTAT-DEL

Audit is in no mood to accept Board's explanation. “What about your clarification?”, asks the CAG. Audit has also observed that in the case of HUDCO vs Commissioner of Service Tax Ahmedabad, CESTAT, Ahmedabad - 2011-TIOL-1606-CESTAT-AHM had held that Service Tax is leviable on the reset charges and pre-payment charges paid by the customers. (Against this favourable order, Revenue went in appeal to the High Court as the Tribunal had dropped penalties)

So, now we have two contradictory orders from two Benches of the CESTAT:

1. SIDBI vs CCE Chandigarh - 2011-TIOL-581-CESTAT-DEL

2. HUDCO vs Commissioner of Service Tax Ahmedabad, CESTAT, Ahmedabad 2011-TIOL-1606-CESTAT-AHM

In 2014-TIOL-935-CESTAT-DEL, the Tribunal observed, “Two decisions of this Tribunal in  Small Industries & Development Bank of India vs. CCE, Chandigarh - 2011-TIOL-581-CESTAT-DEL  and in  Housing & Dev. Corporation Ltd. vs. CST, Ahmedabad - 2011-TIOL-1606-CESTAT-AHM  have recorded conflicting views and conclusions on the issue whether foreclosure charges fall within the ambit of "banking and financial" services. The earlier judgment ruled that these do not fall within the ambit of the taxable service while the later distinguished the earlier judgment in  SIDBI  and concluded that foreclosure charges come within the ambit of "banking and other financial" service.”

When there are two conflicting decisions, why is the matter not referred to a Larger Bench? Maybe because this was only a Stay stage, they granted waiver of pre-deposit and matter will be referred to the Larger Bench after ten years.

The Tribunal, Chennai Bench in 2014-TIOL-103-CESTAT-MAD, followed the HUDCO decision and order pre-deposit of two crores of rupees.

Now, the CAG wants the Board to give a clarification regarding the applicability of TRU letter F. No. 345/6/2008-TRU dated 11 June 2008 keeping in view the various CESTAT decisions on the subject.

Now, what can the poor Board do? Reiterate its own circular or follow one of the two decisions of the Tribunal.

Litigation assured for the next twenty years - on an issue, which can be settled with one sensible sentence. Who will deliver that?

Tariff Value of Gold and Silver reduced

THE Government has decreased the Tariff value of Gold from 425 USD to 421 USD per 10 gms. The tariff value of Silver has also decreased from 690 to 671 USD per kilogram. Tariff Values of various oils have been reduced. Tariff value of Brass scrap has been increased. However, the Tariff values of Poppy Seeds and Areca Nuts remain same. The Tariff values as on 15.07.2014 and with effect from 31.07.2014 are as under:  

Notification No.55/2014-Customs (NT), Dated: July 31, 2014

Clarification Regarding Acquisition and Transfer of Immovable Property In India by Foreign Nationals

IT has come to notice of the Central Government that foreign nationals are buying immovable property illegally in some parts of the country. Many organizations and social groups have also made representations to the Central Government expressing their serious concerns in this regard.

It has also been observed that foreign nationals coming to India and staying beyond 182 day on a tourist or other visa meant for a certain period are illegally acquiring immovable property in India in violation of the extant rules and regulations under FEMA.

Finance Ministry has clarified that:

1. An Indian citizen resident outside India and a Person of Indian Origin resident outside India may acquire immovable property in India other than agricultural land, plantation or a farmhouse.

2. A foreign company which has established a Branch Office or other place of business in India under the provisions of Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000 can acquire immovable property in India which is necessary for or incidental to carrying on such activity, subject to the conditions stipulated.

3. A foreign national who is residing in India for more than 182 days during the course of the preceding financial year for taking up employment or carrying on business/vocation or for any other purpose indicating his intention to stay for an uncertain period can acquire immovable property in India as he would be a ‘person resident in India' as per Section 2(v) of FEMA 1999.

Ministry has advised all concerned to be extra vigilant.

Finance Ministry Clarification, Dated: July 31, 2014

CAG Audit of ‘deemed government companies' - MoCA clarifies

DOUBTS have been raised about applicability of sections 139(5) and 139(7) of the Companies Act, 2013 (New Act), which deal with appointment of auditors by Comptroller and Auditor General of India (C&AG), to 'deemed Government Companies' referred to in section 619E of the Companies Act 1956 (Old Act) i.e. companies where ownership or control lies with two or more Government companies or corporations.

Ministry clarifies that the new Act does not alter the position with regard to audit of such deemed Government Companies through C&AG and thus such companies are covered under sub-section (5) and (7) of section 139 of the new Act.

Clarification has also been sought about the manner in which the information about incorporation of a company subject to audit by an auditor to be appointed by the C&AG is to be communicated to the C&AG for the purpose of appointment of first auditors under section 139(7) of the New Act. It is clarified that such responsibility rests with both, the Government concerned and the relevant company.

To avoid any confusion it is further clarified that it will primarily be the responsibility of the company concerned to intimate to the C&AG about its incorporation along with name, location of registered office, capital structure of such a company immediately on its incorporation.

It is also incumbent on such a company to share such intimation to the relevant Government so that such Government may also send a suitable request to the C&AG.

Where is the Governance in all this Government?

MoCA General Circular No. 33/2014, Dated: July 31, 2014

Cycle to Supreme Court - Acute Parking Problem

ALL that I learnt in my practice in a High Court is to park my car in reverse gear between two cars which are too close for decency. Our Courts were not built when there were so many cars around and unfortunately, even the new courts do not provide ample parking space and all the chaos in the Indian judicial system can be actually seen in the parking space with too many cars chasing too few parking slots.

Yesterday there was a hearing in a writ petition pertaining to parking problem in the Supreme Court.

Chief Justice of India RM Lodha asked, “Why can't you reduce the use of cars in Supreme Court? Why can't you use cycles? It will be environmental friendly too. Lawyers are leaders of change. You should usher in changes.”

Surely the Chief Justice was only joking. It will be a sight to see lawyers cycling to the Supreme Court in their black coats and robes - It will be like batman on a bicycle! The Solicitor General told the court that it will not be possible for lawyers to cycle from Noida, Gurgaon and other far off places.

Even if you insist on cycles, the position may be like this after some time.

The case is adjourned for six weeks and the Solicitor General agreed to look into the issue and come up with a solution.

When the new CESTAT Benches are opened, we should keep this in mind and plan ahead for at least fifty years.

No Voluntary Disclosure Scheme - Nirmala Sitharaman

REPLYING to the Budget Debate in Rajya Sabha on 30th, the MoS, Finance, Nirmala Sitharaman said,

I would like to put on record here, the experience shows that when you bring in voluntary disclosure schemes, it discriminates against genuine tax payers. Those who do pay tax are disincentivised or it goes against honest tax payers and it may even be discriminatory. So, maybe, that may not be a very conducive path for recovering more taxes.

DDT Cartoon

Jurisprudentiol - Monday's cases

Service Tax

CENVAT - Rule 6(3A) of CCR, 2004 - deficiency in reversal of credit is due to rounding off of percentages of credit to nearest decimal - no evidence that taking of credit was on account of any intention to evade service tax - Stay granted: CESTAT

A demand of Rs.1.01crore was confirmed by the CCE, Mumbai-I along with penalties and interest against the service tax assessee.

The appellant is before the CESTAT and submits that -

+ During the year 2008-09 the appellant availed CENVAT credit on input services used in the rendering of dutiable as well as exempted services. However, they reversed the CENVAT credit attributable to the exempted services as per the procedure. Inasmuch as the turnover of the exempted services amounted 90.60% of the total turnover, the same was rounded off to 90% and the credit was reversed accordingly.

+ In the subsequent year i.e., 2009-10, the appellant reversed CENVAT credit at 87% of the total credit taken whereas the credit attributable to the exempted services amounted only to 86.57%. This was also done due to rounding off.

+ The excess credit availed in 2008-09 amounted to Rs.1.01crore while the short credit availed during the year 2009-10 amounted to Rs.1.11crore.

+ It is submitted that it was only due to rounding off, the excess taking of credit or the short-taking of credit arose, and there was no intention on the part of the appellant to evade any service tax and, therefore, if the excess credit taken during the year 2008-09 is adjusted against the short-credit taken during 2009-10, there would be no loss of revenue to the exchequer.

Income Tax

Whether when assessee does not cooperate in assessment and DVO also adopts arm-chair approach of making no independent inquiry, merely following return on capital method AO can make huge additions as unexplained investment - NO: HC

THE assessee, an individual, had filed the return for AY 2007-08. Revenue conducted a search and seizure u/s 132 in respect of the Gopal Zarda Group including the assessee, and proceedings u/s 153A were initiated. The case of the assessee was centralized by an order and notice was issued u/s 153A requiring the assessee to file return. The assessee filed a return declaring income of Rs. 12,76,890/-. The original return in this case was filed on 05.11.2008 declaring income of Rs. 12,62,699/- . The difference was on account of interest income from bank which was declared at Rs. 14,846/-; subsequently it was disclosed as Rs. 29,035/-. AO held that property bearing No. 201 to 210, 15, Community Centre, Karkardooma, Delhi-92 shown to have been purchased for a consideration of Rs. 51 lakhs was not correctly valued.

The issue before the Bench is - Whether when the assessee does not cooperate in the assessment proceedings and the DVO also adopts arm-chair approach of making no independent inquiry, merely following the return on capital investment method the AO can make huge additions as unexplained investment. And the verdict favours the assessee.

Central Excise

CENVAT Credit on capital goods - Credit on Captive Power Plant set up on premises leased out to adjacent unit - Credit allowed - Tribunal by majority.

CENVAT Credit on Capital goods/input/input service used on power plant situated at a different premises is admissible subject to exclusive supply of power by the impugned plant to the assessee manufacturing unit - In the present case, the capital goods were used to set up power plant for generation of electricity primarily for use in the manufacture of the final product within the factory of the appellant - So, if the power plant is situated outside the factory premises, CENVAT credit on capital goods used for setting up power plant cannot be denied as the electricity is captively consumed within the factory of the appellant - title of the property is not relevant for availing CENVAT credit on capital goods.

See our Columns Monday for the judgements

Until Monday with more DDT

Have a nice weekend.

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