TIOL-DDT 2436
12.09.2014
Friday

MAKING a ship is an excisable activity, but is breaking up a ship also one? Breaking up a ship may be excisable because several products emerge in the course of breaking up, but is buying a ship for breaking up an excisable activity?

In the Excise Tariff, Item No. 8908 00 00 is Vessels and other floating structures for breaking up.

Does anybody manufacture a ship for breaking up? Goods are excisable only if they are manufactured and if no ships are manufactured exclusively for breaking up, why this entry in the excise tariff and what is taxed under this head?

Mysterious indeed!

I covered this more than seven years ago in DDT 541. This is what I said then;

So, the whole purpose was to collect CVD on imported ships for breaking up. And that is now quashed by the Gujarat High Court.

The Gujarat High Court relied heavily on the Supreme Court Judgement in Hyderabad Industries Ltd. Versus Union of India, reported in - 2002-TIOL-369-SC- CUS -CB, wherein it was held:

when articles which are not produced or manufactured cannot be subjected to levy of excise duty then on the import of like articles no additional duty can be levied under the Customs Tariff Act. The levy of additional duty being with a view to provide for counter balancing the excise duty leviable, we are clearly of the opinion that additional duty can be levied only if on a like article excise duty could be levied.

This appeal was filed in 1995 - nearly twenty years ago, but that was worth waiting for - all those who did not pay, need not pay; all those who did, may not get any refund.

The bright boys in the North Block will have to break their heads on this issue. They may not succeed in Supreme Court as the High Court relied on a Supreme Court Judgement. Retrospective legislation on the way?

In Notification No. 12/2012-Cus dated 12.03.2012, in Sl. No. 461, vessels for the transport of persons or goods, falling under heading 8901 (excluding those which are imported for breaking up) are fully exempt from payment of import duty subject to the condition:

If the vessels and other floating structures are intended to be broken up after their importation, the importer shall present a fresh bill of entry to the Commissioner of Customs, and thereupon such goods shall be chargeable with the duty which would be payable on such goods as if they were entered for home consumption, under section 46 of the Customs Act, 1962 (52 of 1962), on the date of the presentation of such fresh bill of entry, for the purposes of break-up of such goods.

We bring you this landmark judgement.

Please see Breaking News.

Also see The largest ship-breaking yard on the planet.

GST - Amma wants an independent compensation mechanism and methodology for revenue losses suffered by the States

IN a letter to the Finance Minister yesterday, Tamil Nadu Chief Minister Jayalalithaa made several suggestions and raised apprehensions about GST.

Her Suggestions:

1. States should be allowed to grant exemption on all goods of local importance without any restrictions.

2. To avoid dual control, States should be vested with the control of dealers having a turnover up to Rs.1.5 crores both for intra-State and inter-State supply of goods and services, whereby the Centre can avoid expanding its administrative machinery while collecting CGST from such dealers.

3. Petroleum and Petroleum products should be kept completely outside the ambit of GST.

4. States should also be empowered to levy higher taxes on tobacco and tobacco products on par with powers proposed to be vested with the Centre to levy Excise Duty on tobacco and tobacco products in the draft Bill.

5. All the States may be permitted to retain the entire 4% of the CGST part of the IGST on all inter-State sales without crediting any amount to a compensation fund. This will enable a substantial reduction in the compensation payable to the States.

6. An independent compensation mechanism and methodology for revenue losses suffered by the States is an essential prerequisite for implementation of GST. It is understood that officials of the Government of India have suggested a separate legal provision for compensation, as part of the enabling GST Legislation. A mere legal provision will not serve the interests of the States.

7. Before the enactment of the Constitutional Amendment Bill on GST is taken up, the Government of India should strive for a broad consensus on the important issues relating to GST like compensation period and methodology, revenue neutral rates, floor rates with bands, commodities to be excluded from GST, IGST Model and clarity on dual administrative control, so that the genuine apprehension of the States over loss of fiscal autonomy and permanent revenue loss are allayed.

Apprehensions:

1. The proposal of the Government of India to bring petroleum products under the ambit of the Goods and Services Tax is another area of concern which would seriously diminish the limited revenue resources of the States.

2. The proposed system of dual levy wherein the States will also be empowered to continue the existing levy of tax on the sale of petroleum products in addition to the levy of GST is not acceptable, as a portion of the tax on petroleum products would still be eligible for Input Tax Credit.

3. Tamil Nadu has strong misgivings about the latest suggestion of the Government of India that the GST component of the levy on petroleum products can be at a very low rate or even zero-rated for an initial period of at least 3 years to avert any possible sudden revenue loss to the States.

4. There is no certainty that, in a period of three years, the revenue gain on account of levy of tax on services and on import of goods would be substantial enough to offset the revenue loss on account of bringing petroleum products under the ambit of GST nor is there any guarantee that GST will not be prematurely imposed on petroleum products.

5. The "Place of Supply of Service Rules" which are to be framed will also play a vital role in estimating the tax revenue from services to the States. Without finalizing these important elements, it may not be feasible to accurately calculate the State-wise Revenue Neutral Rates.

6. It cannot be denied that manufacturing States like Tamil Nadu stand to permanently lose substantial revenue if GST is implemented, due to the sudden shift of levy from the point of origin to the point of destination.

7. In addition to the revenue loss arising out of phasing out of CST and transfer of Input Tax Credit on inter-State Sales and inter-State Stock transfers, the State also stands to lose substantial revenue arising out of subsumation of other taxes such as Entertainment Tax, Luxury Tax, Entry Tax on Vehicles and Betting Tax.

She has sent a copy of her letter to all the Chief Ministers with a hope that they will agree with her views that, before enactment of the Constitutional Amendment Bill on GST is taken up, the Government of India should strive for a broad consensus on the important issues relating to GST without compromising the fiscal autonomy of the States.

Will anybody from CBEC allay her doubts? The Board seems to be far away from GST legislation.

You can read the full text of her letter here.

State Opinion on GST

STATE Finance Ministers have strong opinions on the GST which seems to be imminent now, as expressed in a meeting called for by the Finance Commission.

Gujarat

Gujarat government has come out with an innovative proposal to address the concerns of "manufacturing states" that the proposed destination-based tax would deprive them of legitimate tax revenue.

It is suggested that proceeds from 2 percentage points of the Centre's GST levy on inter-state transactions be transferred to states that supplied the good or service. This would ensure that the key trait of GST - as one that shifts taxes from investment and production to consumption - won't be undermined as the collection would be purely based on consumption (purchase) and the arrangement of special transfer to the producing state would be solely independent of the way the tax is structured/administered.

Bihar

Bihar government demanded a Constitutional amendment to compensate the revenue loss to states likely to be caused once the Centre implements proposed GST. Bihar Finance Minister Vijendra Prasad Yadav said consequent upon the implementation of Goods and Services Tax (GST), major changes in the condition and direction of indirect taxes cannot be ruled out.

This system is bound to have a far-reaching impact on the most important source of revenue of the States.

Any reform, howsoever progressive it may sound, cannot be adopted by the states until and unless they are convinced that this will not have any adverse impact on their revenue.

There is fear of loss of revenue to the states due to implementation of the proposed GST.

In view of present system of compensating the central sales tax, the Minister said, there is a compulsion of not accepting anything less than a constitutional solution in the matter of definite loss to the states due to GST.

If the better condition of States' internal resources is seen in this context, it would not be fair to give the major credit for this improvement to the VAT system. It was difficult to assess the condition of the economy and inflation at the time of implementation of GST and as such it is also unpredictable as to what extent this system would affect the revenue of various states.

He felt that after implementation of GST while states would not receive the central sales tax available to them, even the tax realized in the seller state on the input involved in inter-state sales would have to be transferred to purchaser state and they will have to sustain loss of revenue.

Telangana

Telangana State wants the Centre to bear any loss to the State due to implementation of the Goods and Services Tax (GST). Centre's ambitious proposal of integrated Goods and Services Tax (GST) was welcome.

"We will seek payment of tax dues pending to the state to the tune of about Rs 3,000 crore, and request the Centre to bear any loss due to implementation of the GST and excise revenues should not be clubbed with GST," E. Rajender, the State Finance Minister said.

Andhra Pradesh

Extending Andhra Pradesh Government's support to the proposed tax reforms, State Finance Minister Yanamala Ramakrishnudu demanded that the Union Government compensate the loss of revenue due to implementation of the Goods and Services Tax (GST).

He suggested the compensation mechanism should be such that there should be an independent body to release the compensation which should not leave any scope for whims and fancies of the Centre and if possible, should be made part of the constitutional provisions.

He expressed that the agricultural products should not be exempted under GST, as the loss of revenue would be considerable. In case they are exempted, a permanent production-linked compensation to the State should be provided and the successive Finance Commissions should be asked to make recommendations thereof.

The Minister demanded that Petroleum products be kept outside the GST and States should continue to levy taxes on them at present rates. As a measure of building confidence among the States by the promise of the Central Government to compensate GST loss, the Centre should release the amount of loss of revenue due to phasing out of CST.

Madhya Pradesh

BJP Government at the Centre has changed the GST scenario. Madhya Pradesh chief minister Shivraj Singh Chouhan said a consensus will be formed and the new tax regime could be rolled out as early as next year. "We have never opposed GST in principle. We were opposed to some of the provisions that were part of the earlier version of the constitution amendment Bill. We stressed the need to protect states' revenues. We also wanted that states should be collecting taxes and give centre its share."

Chouhan pointed out that the previous government's reluctance to pay central sales tax compensation to states had made states wary about depending on the centre. "But with the BJP government at the centre, I think that the challenges in implementing GST are getting removed. The finance minister has given an assurance that the concerns of states will be addressed. In a federal structure, it is important to take states into confidence. The consensus is slowly getting built. I think we should have a consensus by next year."

DDT Cartoon

Jurisprudentiol – Monday's cases

Central Excise

Penalty - s.11AC of CEA, 1944 - If material produced is not pointing towards any fraud or collusion or any willful misstatement or suppression of facts or contravention of provisions of Act or Rules with intent to evade payment of duty, then, imposition of penalty is not called for: HC

DURING the visit of the Preventive Officers it was pointed out that the assessee had cleared Galvanized Transmission Towers and parts thereof by wrongly claiming exemption under notification 6/2002-CE as amended by notification 48/2004-CE dated 10.09.2004. The officers were of the view that the exemption is available for the supply of the goods against International Competitive bidding only & to the goods which are exempt from the duties of Customs and the additional duty leviable under the Customs Tariff Act when imported into India, as per condition No.64 of the Notification and since the condition of the said Notification was not fulfilled, the appellant was not eligible for exemption.

The assessee immediately paid the duty due along with interest. In adjudication proceedings, a penalty was imposed on the assessee.

Income Tax

Whether assessee providing HR Services like recruitment of manpower for foreign clients is entitled to Sec 10A benefits - YES: HC

THE assessee M/s ML Outsourcing Service P Ltd filed NIL return. During assessment the AO disallowed the claim under Section 10A and held that the net profit of Rs.88,49,972/- should be brought to tax by denying exemption under Section 10A of the Act. One of the reasons given by the Assessing Officer to disallow the claim was that the assessee was rendering services as an employment agent, like any other employment agency, and merely forwarded list of shortlisted candidate to their overseas clients. There was a minimum use of computers or information technology enabled tools. The assessee was, therefore, not involved in the development of computer software or information technology enabled services as the use of technology was not quintessential for the nature of services rendered and the core activity was that of an employment agent.

The issue before the Bench is - Whether assessee providing HR Services like recruitment of manpower for foreign clients is entitled to Sec 10A benefits. And the answer is YES.

Service Tax

ST - Storage and Warehousing of goods is separate activity in itself and does not form part of Cargo Handling services -Tax demand upheld for normal period with penalty and interest: CESTAT

MIPL is operating a Container Freight Station (CFS) and have entered into a contract with MLOG for providing various services in the premises of their CFS viz. rental space for keeping, storing, stuffing or consolidation of export cargo into containers. M/s MLOG have accordingly paid a fixed monthly amount to MIPL as "Space Reservation Charges".

See our Columns Monday for the judgements

Until Monday with more DDT

Have a nice weekend.

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