Service Tax Audit - Cart Before Horse - Board Clarifies
11.12.2014
Thursday
SERVICE Tax is an evolving LAW and is only twenty years old and in these twenty years the wise lawmakers have created massive confusion and filled the courts with mindless litigation.
Till 2007, there was actually no provision to audit Service Tax assessees at their premises. By Notification No. 45/2007, a new Rule 5A was inserted in the Service Tax Rules. Rule 5A(2) mandated the assessees to make available the records to the audit party deputed by the Commissioner or the CAG.
The Board in F. No. 137/26/2007-CX.4 dated 1.1.2008 clarified that these amendments have been made in the service tax rules to enable the duly authorised offices to carry out audit or scrutiny as may be necessary to safeguard the interest of revenue.
But does the Government have the power to frame such rules or the Board the power to issue such instructions?
The Delhi High Court in the case of M/s Travelite (India) - 2014-TIOL-1304-HC-DEL-ST, held that any attempt to include provision for such a general audit through the back-door, such as through the impugned rule, is ultra-vires the rule making power conferred under Section 94(1). Rule 5A(2) was consequently struck down.
To legitimise Rule 5A(2), Section 94 was amended to insert a new clause (k), by Finance Act 2014 with effect from 06.08.2014. So, now the Rule making power includes the power to make rules for imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified.
But will this clause in Section 94 validate an already existing Rule 5A(2)?
Just a few days ago vide Notification no. 23/2014-Service Tax dated 5th December, 2014, the Government inserted a new and revised Rule 5A(2) (DDT 2491), obviously in exercise of the new clause (k) of Section 94. So the Delhi High Court order is UNDONE. The Board almost says so in a Circular issued yesterday. Board clarifies, "the Hon'ble High Court of Delhi in the judgment dated 04.08.2014 in the case of M/s Travelite (India) - 2014-TIOL-1304-HC-DEL-ST had quashed rule 5A(2) of the Service Tax Rules, 1994 on the ground that the powers to conduct audit envisaged in the rule did not have appropriate statutory backing. This judgment can now be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act."
Board further states,
Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression "verified" used in section 94(2)(k) of the said Act is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute .
Board directs the Departmental Officers to audit the Service Tax assessees as provided in the departmental instructions in this regard.
First they make the Rule; then they make the Act; then they make the rule - after litigation in several High Courts.
CBEC Circular No. 181/7/2014-Service Tax, Dated: December 10, 2014
GST - FM to Meet State FMs today
SPEAKING in the Lok Sabha yesterday, Finance Minister Arun Jaitley said,
Tomorrow, I have called all the Finance Ministers of the States and GST is an issue on which broadly most parties have agreed.
A major impediment in the implementation of the GST has been the trust deficit between the States and the Centre. One of the major reasons for this trust deficit is non-payment of the CST compensation to the States from 2010 onwards. In my meeting with the Empowered Committee of the State Finance Ministers on 3rd July, 2014, I had committed that partial payment of the outstanding CST compensation will be released this year. I stand by this commitment given by me. Despite difficult and challenging situation, I proposed to release about Rs.11,000crore which is one-third this year as part payment of CST compensation to the States. This will take care of the amount from 2010-11 onwards; the balance amount I will start paying from the next financial year onwards when hopefully the situation would be better. ...
GST is not an issue on which we are divided on partisan lines. Most State Governments are going to benefit; the revenues are going to improve as far as the Centre is concerned and States are concerned. I wish to just assure this House with this commitment.
And CII wants CST reduced to 1%.
MEANWHILE in a pre-budget meeting with Revenue Secretary Shaktikanta Das, CII suggested reducing the CST rate from 2% to 1% due to the delay in implementation of GST.
CII further suggested:
1. short-term stimulus package involving reduction of excise duty on certain goods should continue up to March 15, 2015.
2. rationalization of CENVAT credit scheme by doing away with the negative list.
3. Infrastructure companies should be exempted from paying MAT.
4. The MAT on SEZs should be abolished.
5. Benches of CESTAT should be increased to resolve indirect tax litigation where there is a huge pendency on excise and service tax cases.
FM on Taxation
THE FM told the Lok Sabha yesterday,
The Prime Minister of India writes to a Prime Minister of a foreign country that we have a society governed by rule of law and courts will be respected. When courts decide, we retrospectively nullify that decision. Which investor is going to trust our investment environment then? That is the political question, which we have to address.
Therefore, we want to give India the taxes which are payable. We will go to any extent to charge them. But as regards taxes which are not payable, we just flex our muscles, get the investment environment in India a bad name and eventually do not recover those taxes.
Income Tax - Salaries - CBDT Issues TDS Circular
IT is customary for the CBDT to issue a circular on deductions, computation, TDS etc. on salaries, every year.
The present Circular contains the rates of deduction of income-tax from the payment of income chargeable under the head "Salaries" during the financial year 2014-15 and explains certain related provisions of the Income-tax Act.
CBDT CIRCULAR NO. 17/2014 [F.No. 275/192/2014-IT(B)], Dated: December 10, 2014
Large pendency in registration of new assessees on ACES - CBEC Member's concern
CBEC Member SB Singh has written a D.O. Letter to all the Chief Commissioners about the huge pendency in registration of new assessees. He is informed that 1600 new registration applications in Central Excise and 19,000 in Service Tax are pending with the officers for processing in ACES. He says that in spite of his clear instructions during the All India Conference of Chief Commissioners in Delhi, also repeated during the Central Excise Tariff Conference in Bangalore, to ensure proper disposal of all documents marked to the officers in ACES, including the new registration applications pertaining to other jurisdictions, field officers are waiting for migration of assessees on ACES for granting registration. He says, This is patently wrong.
He directs the field officers to immediately process the pending registrations on ACES irrespective of the jurisdictions to which the new applicants need to be mapped. These applicants may be granted registrations on ACES according to the jurisdictions which would have been appropriate prior to migration to new jurisdictions so that they can commence or continue with their business activity and pay taxes.
He directs the Commissioners to monitor the pendency personally and ensure that this pendency is wiped out within 15 days as this has a bearing on payment of duty by the new assessees.
He is going to personally monitor the progress. All the best Sir!
CBEC Member's D.O.NO.96/42/ 2014-CX.I (pt.); Dated: December 10, 2014
Cadre Review Confusion - Migration of assessees to new Jurisdictions - CBEC Member's Directions
WITH new Commissionerates and Divisions, nobody knows his jurisdictional officer. CBEC Member Shashi Bhushan Singh has written a D.O Letter to all the Chief Commissioners to ensure that migration takes place smoothly. He says that DG, Systems plans to initiate migration of the assessees as soon as the information is received from the Commissioners or from 20th December whichever is earlier.
He wants the Commissioners and Chief Commissioners supervise and monitor this massive exercise.
CBEC Member's D.O.NO.96/42/ 2014-CX.I (pt.); Dated: December 10, 2014
Coal Classification - Matter goes to Larger Bench
WHEN the then Hon'ble Finance Minister in his budget speech for 2012-13 said "Domestic producers of thermal power have been under stress because of high prices of coal. I propose to ease the situation by providing full exemption from basic customs duty and a concessional CVD of 1 per cent to Steam coal for a period of two years till March 31, 2014. Full exemption from basic duty is also being provided to the following fuels for power generation", he perhaps might not have realized that he is actually triggering the stress for the Industry in the next few months and "easing the situation" is never going to be a reality.
The premier investigating agencies started to believe that the thermal power producers of this country, both in public and private sector have been evading crores of Rupees of customs duty by irregularly taking benefit of the exemption announced by the Finance Minister by mis-classifying their coal as Steam coal while it merits classification as Bituminous coal. They started protecting the revenue for the Government.
When the matter reached Tribunal, the Bangalore Bench in Coastal Energy Pvt Ltd & Others Vs CCE 2014-TIOL-1157-CESTAT-BANG upheld the demand on coal imported by classifying the same as Bituminous Coal under Customs Tariff 2701 1200 and rejected the contention of the importers that it is classifiable as Steam Coal. In subsequent order in case of Maheswari Brothers Vs CCE - 2014-TIOL-2502-CESTAT-BANG, the Tribunal ordered pre-deposit of duty and interest.
The Ahmedabad Bench of the Tribunal had also ordered pre-deposit - 2014-TIOL-2492-CESTAT-AHM and even an appeal by one of the parties to the High Court was not successful. - 2014-TIOL-2207-HC-AHM-CUS.
The issue has come up before the Chennai Bench of the Tribunal recently. While disposing the stay applications filed by a number of appellants, the Bench observed that there is a conflict between decisions in case of Tamil Nadu Newsprint & Papers Ltd. Vs Commissioner of Customs, Tuticorin - 2009-TIOL-1851-CESTAT-MAD and Maheswari Brothers 2014-TIOL-2502-CESTAT-BANG and placed the matter before the President for constitution of Larger Bench.
Now that Chennai Bench has referred the matter to the Larger Bench, will other appellants in the queue get waiver of pre-deposit?
Whatever may be the decision of the Larger Bench, the aggrieved party will go in for an appeal. All this because somebody could not draft a Notification properly to give effect to the intention of the Finance Minister. When the intention was to help thermal power industry, the exemption could have been given to any type of coal used by a thermal power plant for generation of electricity.
It seems the classification by the department largely depends on rate of duty more than anything else. The classification of disputed coal was accepted as Steam Coal by the department when duty rates were initially same for both types of coal. Disputes started after the 2012-13 budget (17th March 2012) when exemption was granted to Steam Coal. When parity is restored for both types of coal from 01.03.2013, it seems the classification, as Steam Coal is not disputed by the department for the imports made after 01.03.2013. So, beware, your classification is not dependent on the actual product, but solely on the rate of duty.
We bring you the much-awaited Chennai Bench Order today. Please see Breaking News
Jurisprudentiol-Friday's cases
Customs
Burden of proving any form of mala fide lies on shoulders of one alleging it - since vessels were boarded by Customs (Prev.) staff and examined and pursuant thereto assessment was done, there cannot be any suppression alleged on part of appellant - Appeals allowed: CESTAT
THE Commissioner of Customs (Imports), Mumbai classified the Tug/Supply Vessels "Sea Cheetah" and "Sea Venture" imported by the appellant under CTH 8904 and confirmed differential duty demands of Rs.9,08,68,858.87 and Rs.62,88,264/- respectively by invoking the extended period of time. Further, he also imposed penalties u/s 114A, 112(a) &114AA on various persons who are all before the CESTAT along with the appellant.
The appellant submits that they had filed documents such as invoices, packing list, bill of lading, sale bill and the Indian Register of Shipping certificate at the time of assessment; the vessels were examined by the Customs on first check basis and there after, the goods were assessed to duty as per the claim of the appellant under CTH 8901 9000 as vessels for the transport of goods and persons.
Income Tax
Whether when assessee engaged in trading of shares incurs expenses on unsecured loan and utilises same for buying shares for investment, such expenses are allowable as per Sec 36(1)(iii) - YES: HC
THE assessee concern was dealing in trading of shares. It was depicted in the order of Tribunal that as per clauses of memorandum, the company was authorised for investment and dealing. Clause-43, though entitles the assessee to carry on all that activities, does not mean it can carry on business or acquiring shares for the purpose of carrying the business. Its expenses were debited by the entry in the accounts and other attempting balances. Balance Sheet shows "Long Term Investment" and not "Stock-in-Trade". The Company for which the shares were acquired was a BIFR Company, the shares of which were hardly tradable. The assessee own version that intention was to acquire the company through BIFR shows that it was not with an intention to carry on business, nor to acquire the shares, but to acquire the company through BIFR.
The issue before the Bench is - Whether when assessee engaged in trading of shares incurs expenses on unsecured loan and utilises same for buying shares for investment, such expenses are allowable as per Sec 36(1)(iii). YES is the answer.
Service Tax
Benefit of savings in Ocean freight passed on to appellant by principal is not chargeable to ST under Cargo Handling Service as there is no service involved - goods belong to appellant & for charging ST there has to be service provider and service recipient: CESTAT
THE Bench observed that in the matter of Distribution fee/Agency fee received from the foreign principal under 'Commission Sales Agreement' and 'Non-exclusive Distributor Agreement', the question whether such activities would attract service tax is no longer res integra in view of the decision in GAP International Sourcing (India) Private Limited vs. CST - 2014-TIOL-465-CESTAT-DEL holding that where a service provided by a person in India is consumed and used by a person abroad, it is treated as export.
See our Columns Tomorrow for the judgements
Until Tomorrow with more DDT
Have a nice day.
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