TIOL-DDT 2501
22.12.2014
Monday

INTRODUCING the Constitution Amendment Bill popularly known as the GST Bill in the Lok Sabha on Friday, Finance Minister Arun Jaitely said,

In fact, let me remind the hon. Members that this Bill, in the context of how taxation is to be levied, has earlier been introduced. It has been cleared by the Standing Committee. It has been the good luck of this Parliament and the country that conventionally West Bengal was the greater supporter of this Bill. Therefore, if there is any change in thinking, I do not know. In fact, it was the effort of Shri Asim Das Gupta, who conferred not only with Chief Ministers but also with me on some occasions when I was the Leader of Opposition in order to mobilise support for this Bill.

On substance, I have just two things to say to allay any fear that you have. It was mooted in 2006 by the UPA in its Budget, and was originally conceived by Vajpayee ji. It was pushed by both the UPA Finance Ministers. The object behind the GST is to have a seamless transfer of goods and services across the country. Let there be no tax on tax. So, if you have multiple taxations imposed, the burden and the procedural complications increase. On the destination principle, the tax is at the last stage.

Now, one legitimate fear was there. Therefore, I am not going to rush through with this, as Shri Mahtabji has said, though the Standing Committee has cleared it, though I have discussed it repeatedly, though Shri Chidambaram has discussed it repeatedly with the Empowered Committee and the State Governments. I have met several Chief Ministers and Finance Ministers, and discussed this issue with them individually also.

We have added several safeguards to this. I called a meeting on the last occasion on Friday. The Finance Ministers expressed some three or four points of concern. Then a smaller group came and met me, which comprised of people from various political parties. But they came really speaking in one voice.

These meetings went on for hours together. Thereafter, they wanted some change in the language which was to give more liberal rights to the States. I acknowledged that request. Even now, the intention is not to push it through. Whether a Standing Committee is again required or not required is a separate issue. But we want this to be debated after it is introduced, after the Draft to be out so that if anybody has any suggestion to offer. I am willing to accept that. We have made sure that no State will lose a rupee of revenue. It will be a win-win situation where they will gain.

Amongst the other factors, I will just give you three factors. Service tax is entirely in the domain of the Centre today. It is going to be shared with States now. Places like Maharashtra, from where one-third of the national service tax comes, will benefit. When we share it with them, it more than takes care of the octroi absorption into the GST. Additionally, we will make sure that for some period, two years, a one percent additional tax is permitted to the States. Even then, the consuming States are all going to benefit. If some producing State, for some period, loses some money, in the Constitution Amendment itself, I have provided that for five years, there is a mechanism. For the first three years, it is there entirely and then it is on tapering basis. The Centre will assure them to compensate them for any loss which has been suffered.

As far as the past is concerned, from 2010 to 2013, the CST compensation which was payable to the States, amongst the various debts which have been left behind on my table by the UPA, this is one of them. They have not paid it. In the discussion on the Demands for Supplementary Grants, I have already said that I intend to honour that commitment which the UPA had made. Therefore, the first instalment in that repayment also, I will try to pay in this financial year itself. So, we will make sure that no State loses. All the States are going to gain more.

When the Bill is take up for discussion, perhaps in the next Session, we will make sure that the interest of every State is well looked after in this. I will be open to all suggestion till the very last minute.

Therefore, just as in the case of VAT, which was the fear of the unknown that will go down, the Centre benefited, the States benefited. I have not the least doubt that both will benefit even in this case. Once both the Houses of Parliament approve this and this becomes a law, certainly, with the approval of the States, we will address the concerns of each one of those States. This is not a partisan piece of legislation. When the UPA Government brought it in, you have had persons from the CPM, the BJP and the National Conference as Chairpersons. The States are certainly concerned about their rights.

We will ensure that their rights are preserved. No State is a loser.

And the Bill to amend the Constitution of India (for the 122nd time) was introduced in the Lok Sabha

Please see THE CONSTITUTION (ONE HUNDRED AND TWENTY-SECOND AMENDMENT) BILL

GST - Will CBEC get subsumed?

THE Bill provides for subsuming the various Central and State indirect taxes in the one GST. Several senior IRS (C&CE) officers with whom I discussed the GST issue in the last two days expressed apprehension that the way things are going, the Board itself may get subsumed in a new GST Board run by IAS officers. They are afraid that if the Board does not stake its claim strongly and establishes its authority, the new tax administration may just slip away from its control. They conceded that they were not the best of tax administrators and the laws made by them left much to be desired, but still for want of a better alternative, they were the best ones to run the GST administration. A Chief Commissioner wondered how the Central GST team was going to interact with the counterpart State administration. The Central Administration is an inverted pyramid with an assortment of Principal Chief Commissioners, Chief Commissioners, Principal Commissioners, Commissioners, Additional Commissioners, Joint Commissioners, Deputy Commissioners and Assistant Commissioners, while a single Commissioner would head the State GST team, with very few top level officers and a large number of field level staff.

Income Tax - Admissions of Undisclosed Income under coercion/pressure during Search/Survey - CBDT Instructions

INSTANCES/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.

Board had issued instruction from time to time which had emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.

Board has reiterated the guidelines and conveys that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the I.T.Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely.

Board requests the senior officers to closely observe/oversee the actions of the officers functioning under them in this regard.

CBDT Instruction in F.No. 286/98/2013-IT(Inv.II)., Dated: December 18, 2014

Budget 2015 - CBDT invites suggestions from Field Formations

CBDT has invited suggestions/recommendations or the annual budgetary exercise 2015-16, which may be sent to the TPL Division or by mail to ustpl3@nic.in. They want the suggestions latest by 10th January 2015.

The CBEC has vide letter F.No.334/20/2014-TRU called for Suggestions from the Industry and Trade Associations for Budget 2015-16 regarding changes in direct and indirect taxes as early as 27th October, 2014. (DDT 2465)

CBDT TPLF.No.134/13/2014-TPL., Dated: December 19, 2014

Central Excise Audit - No Entries in Bangalore LTU Audit Plan Register

THE CAG in its latest report to Parliament has pointed several lacunae in the excise administration.

As per the Audit Manual, a register of units planned for audit in the prescribed format is to be maintained in order to monitor the different stages of execution of audit, ensure that all units allotted to an Audit Group have been audited and that audit reports have been issued on time.

Bengaluru LTU Commissionerate maintained the Audit Plan register but had no entries in it for the period January 2010 to March 2012. Further, for the period upto December 2009, the register did not contain entries relating to date of submission of Internal Audit Report (IAR) to audit cell, Audit Report Number, date of issue of IAR, actual dates of audit, date of issue of IAR. Consequently, it was not possible to monitor, from these registers, whether the mandatory units had been audited as per the guidelines (every unit to be audited once in two years for LTU) and audit reports issued on time. Further, the register was not updated and entries had been made only for the first quarter of 2013-14.

AG, Audit pointed out this to the Board in July 2014. Board replied that the Audit Plan Register was maintained in computer and the hard copy of the same has been pasted in the prescribed register subsequently.

Why couldn't Audit see the computer?

CAG reported that Audit module of ACES was not being used for audit planning and execution by Commissionerates.

Board replied that though the audit module under ACES has been functioning, there are many lacunae, which make the module practically unworkable. Further, the hard copies of the documents received from the assessees are voluminous which require additional staff for digitisation.

What is the solution? Dump ACES?

Delay in Adjudication: CAG's Audit observed that,

1. In 40 cases, revenue of Rs. 177.74 crore is pending adjudication for more than five years.

2. In Indore Commissionerate, 82 cases involving Rs. 199.78 crore were pending adjudication.

3. In Delhi LTU Commissionerate, 30 cases involving Rs. 179.49 crore were pending adjudication.

Audit concludes that notwithstanding the prescribed timelines, several instances of long delays in adjudication continue in most Commissionerates.

CE - Clearances of inputs as such - Whether Credit of input services to be reversed?

THE CAG raised an interesting issue.

Although rule 3(5) provides for reversal of credit taken on inputs or capital goods removed as such, there is no corresponding provision under the Rules requiring payment of the amount equal to the credit of Service Tax paid on input services. These services could include custom house agent's services, clearing and forwarding agents' services, transportation availed for procurement/transportation of inputs or capital goods etc. Non-existence of such provision resulted in unintended benefit to the manufacturer.

The Department stated that in a few cases, clearance of inputs by this assessee to third parties, was treated as an exempted service and the assessee is reversing proportionate Cenvat credit as per rule 6(3) of Cenvat Credit Rules.

Audit is not happy with this reply and suggested that a provision has to be inserted in Cenvat Credit Rules, to reverse the proportionate Cenvat credit of input services at the time of clearance of input/capital goods ‘as such'.

CBEC Member (Central Excise) observed that quantification of input services requiring reversal would be a tedious process and may not be significant enough to warrant such inclusion.

We should be grateful to the Member for this very pertinent observation, but will Audit rest at that? Most probably this will be a change that we can expect in the next budget.

Incidentally, even before CAG's expedition, the Departmental officers have noticed this great issue and Show Cause Notices and Adjudication Orders were issued in several parts of the country. The Tribunal as early as in 2008 in 2008-TIOL-246-CESTAT-MAD had held that the credit of input services need not be reversed and the P&H High Court in 2010-TIOL-786-HC-P&H-ST, held the same view.

Based on this Audit object objection, fresh Show Cause Notices must have been issued notwithstanding the Member's wise counsel.

DDT is Grateful

DDT is grateful to the large number of Netizens who greeted us on the occasion of DDT 2500 by mails, messages, phone calls, Message Board and personal visits. Some of the messages expressed exceedingly high encomiums while one Netizen observed, "Still the credibility of DDT's can be enhanced with more valuable information".

A Principal Commissioner advised DDT to be a little less harsh in its criticism of the Revenue Boards as the bureaucracy in other Departments (headed by the IAS - the IAS Vs IRS syndrome) is far worse. He said that Government is running not because of the bureaucrats but in spite of them.

Commendation or condemnation, DDT is grateful to the Netizens who took the trouble of expressing their views.

Jurisprudentiol-Tuesday's cases

Central Excise

Goods supplied to 100% EOUs on payment of Central Excise duty - Supplier unit entitled for refund of terminal excise duty notwithstanding contrary clarification by Policy Interpretation Committee: HC

GOODS supplied to 100% EOUs - Refund of terminal excise duty rejected based on clarification by the Policy Interpretation Committee that the supplies to EOUs are exempted from payment of Central Excise duty - In an identical set of facts, the Division Bench of the Delhi High Court in Kandoi Metal Powders Manufacturing Company Private Limited V. Union of India and others reported in 2014-TIOL-230-HC-DEL-EXIM took a decision in favour of the manufacturer - The said case arose out of a decision taken pursuant to the resolution dated 04.12.2012 which is impugned in this writ petition. Therefore, the cause of action in the case before the Delhi High Court was the impugned resolution. Impugned order is quashed and the third respondent (JDGFT)is directed to process the refund claim in accordance with the 2009 Policy by taking into consideration the petitioner's refund application dated 16.08.2010 and pass appropriate orders in accordance with law, within a period of three months.

Income Tax

Income Tax - Partnership firm of wife and husband acquired property in Mumbai and Khetwadi but they could not develop same and, therefore, sold it - conclusion reached by lower appellate authorities that the income is to be treated as Long Term Capital Gain instead of business income is proper - Revenue appeal dismissed: HC

THE Assessing Officer held that the partnership firm of husband and wife was constituted for the purpose of doing business as Builder & Developer. If the Assessee was only investing in the property, then, there was no occasion to set up such a partnership firm and if in the meanwhile and upon setting it up it was discovered that it was not viable, steps should have been taken to amend the partnership deed and particularly with regard to scope of the partnership business. In addition to this, when this property at Khetwadi, Mumbai was acquired in 1997, the Assessee made several applications seeking clearances and permissions from the Government Authorities so as to develop and construct upon the property, this would run counter and rather negate the position that the property was held as investment.

Service Tax

Rejection of refund of service tax paid on non-taxable service - Writ Petition allowed with strictures on Department - On account of irresponsible behaviour of officers, entire Department gets bad reputation: HC

THE issue relates to rejection of refund of service tax paid by RITES, a Government of India Undertaking. The Petitioner undertook the activity of laying of optical fiber cables to BSNL and paid service tax. Later, on realizing that the activity did not attract service tax at the material time, filed a claim for refund of service tax paid. The original authority rejected the refund claim. On appeal, the Commissioner (Appeals) allowed the claim for the period falling within one year subject to verification of unjust enrichment. The original authority did not even grant refund sanctioned by the Commissioner (Appeals). The assessee is before the High Court.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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