TIOL-DDT 2649
27 07 2015
Monday

AS mentioned in Friday's DDT, the Constitution 88th Amendment inserted a new Article 268A and a new Entry 92C in List -I (Union List) of the Seventh Schedule to the Constitution of India. To recall;

Article 268A (1) states,

"Taxes on services shall be levied by the Government of India".

Entry 92C reads as:

"92C. Taxes on services."

But there is a small problem - the Eighty Eighth amendment which was passed by both houses of parliament and 15 State Assemblies received the assent of the President on 15th January 2004. But this was never notified!

Why was the Bill introduced?

The Statement of Objects and Reasons for the Bill states:

Introducing the Bill on 6th May 2003, the Finance Minister Jaswant Singh said,

The service sector has grown rapidly all over the world, India being no exception to that global trend. The service sector encompasses wide-ranging economic activities like management, banking, insurance, hospitality, administration, communication, entertainment, travel, wholesale distribution, retailing, research and development activities, professional activities, etc. In 2001-02 the service sector accounted for 48.45 per cent of the country's GDP.

In most developed countries goods and services are traded and taxed together. Taxation of services in India was started through the Union Budget of 1994-95 when it was levied with effect from July 1, 1994 on stockbrokers, general insurance and telephone services.

The power to levy tax on service is, however, not specifically mentioned either in the Union List or in the State List or in the Seventh Schedule of the Constitution. Entry 97 of the Union List gives power to the Centre for levy and collection of any tax not mentioned in either List II or List III. At present, therefore, the Parliament has the power to levy and collect tax on services only as a residual taxation matter. In exercise of this power, the Central Government had periodically taxed selected services.

Sir, the role of this sector being significant and on the basis of deliberations between the State Governments and the Central Government also in accordance with the views and the recommendations of the Expert Committees, it has been proposed to suitably amend Constitution. (i) To introduce a new entry, 92C, ‘Taxes on services', in the Union List, that is List I of the Seventh Schedule of the Constitution. (ii) To insert a new article 268 (a) in the Constitution to provide for levy of taxes on services by the Union and collection and appropriation of the proceeds thereof by the Union and by the States in accordance with the principles to be laid down by a new law to be made by the Parliament. (iii) After the proposed amendments to the Constitution are effected, to enact a suitable Central legislation to provide for all modalities, including levy of tax on services by the Union Government and collection and appropriation of the proceeds of this tax, up to the prescribed  ad valorem  limits, by the Union and the States respectively.

After this proposed amendment to the Constitution is considered and adopted by the Parliament, it has to be ratified by the State legislatures. A suitable Central legislation will then be enacted to provide for all necessary modalities including collection and appropriation of the proceeds of the taxes on services by the Union and the States respectively.

The proposed amendment will facilitate reforms in the domestic trade system and widen the tax base of the States as and when they consider the VAT.

With these few words, I commend the Bill for the consideration of the House. 

Replying to the Debate, the Finance Minister said,

May I clarify at the very beginning that this amendment to the Constitution is an enabling amendment? Details of service, which services to be taxed and what services to be included will be part of the Service Tax Bill which is yet to be presented to Parliament. It will be taken up at that occasion, and that would be a fitter occasion. This is a provision to include a tax measure in the Union List so that both the Centre and the States can collect it. The duty and the responsibility of levying the tax remains of the Union Government.

A number of points came up and I will answer them briefly. For example, that there are minor services and why bring in minor services into the net of Service Tax. This is abundantly clear. This has been made clear on several occasions that the threshold of taxation, annual taxation based on annual turnover will be part of the Service Tax Bill. That Bill will define what the threshold is and minor services, which are the services that are to be excluded from it, will also be part of the Service Tax Bill.

The other theory which a number of Members, particularly the hon. Member from AIADMK Party, raised related to the respective division of the Service Tax between the States and the Centre. Now, the Bill is yet to be presented. It is entirely possible that when the Bill is presented we have that of the Service Tax which say eight per cent, a certain percentage is shared by the States. Now, that should very clearly answer the hon. Members' viewpoint whether it will enhance the revenue of the State or not. Of course, it will enhance the revenue of the States. It is self-evident that if what is not currently being taxed becomes available as a tax resource, then certainly it adds to the revenue. When we discuss as to what percentage of this eight is to be shared between the Centre and the States, what percentage is to be shared, it is entirely possible that certain services which are of a particular nature, those services remain the exclusive preserve of the States. But it is necessary here to understand that when it comes to the Service Tax Bill, we will be considering what is it that should be shared. Should it be the tax that is shared or should it be the service that is shared? What it will eventually amount to is that certain services will fall in the purview of the States.

But I am sure that the hon. members recognise and understand that all the States of the Union do not have a uniform spread of services. For example, certain States are small in size or are geographically located in such a fashion that they do not have such services and it is the responsibility of the Centre to ensure as much equality as possible. These are all issues which will be considered when the Parliament considers the Service Tax Bill as such.

After all, it is an emerging tax which we are considering. All taxes are listed in the Lists and therefore, on this new provision, it is a Constitution (Amendment) Bill that we are considering, which is really an enabling provision.

Nothing happened for the next 11 years and today we are trying to get another amendment to the Constitution passed by the Parliament and the States.

But why was it not notified?

Income Tax - Cost Inflation Index

As  per Section 48 of the Income Tax Act, for calculating capital gains, indexed cost of acquisition is to be deducted from the sale consideration to arrive at the taxable gains. And the Government is to notify a cost inflation index (CII). The government has now notified  1081  as the cost inflation index for 2015-16.

The Cost Inflation Index for the previous years:

Income Tax Notification No. 60/2015, Dated: July 24, 2015

Customs - Integration of Extra Duty Deposit module in ICES

THE Jawaharlal Nehru Custom House informs that payment of Extra Duty Deposit is integrated with ICES and now manual payment will not be allowed.

In the cases where the importer and the supplier are related in terms of the Rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, the SVB of the jurisdictional Custom House issues Circular mandating the importer to pay the Extra Duty Deposit (EDD) of either 1% or 5% as per Para 9 of the Board's Circular 11/2001-Cus. dt. 23.02.2001.

Hitherto the EDD was paid manually by the importer or Customs Broker through Bank Challans and thereby increasing the time taken for clearance of the goods and subsequent storing of these Challans for a long time till finalization of the provisional assessments and sanction of refund if any. The verification of these Challans consumes lot of time at the time of finalization of the provisional assessments and sanction of refund if any.

Now with a view to cut down these delays and costs, the EDD payment is made online through e-payment.

The Customs Brokers or importers are required to approach the Appraising Officer of the group to which the Bill of Entry belongs, whether facilitated by RMS or not.

After the relevant entries are made and duly saved by the Appraiser of the concerned group, the Challan for EDD will be generated in ICES 1.5 and particulars of EDD are forwarded to Bank for e-payment.

From now onwards, manual payment of the EDD shall not accepted.

JN Custom House Public Notice No. 57/2015., Dated July 23 2015.

Web Based e-helpline in JN Customs

IN order to facilitate trade, a new web-based module  "e-Helpline"  is being introduced through JNCH website to provide direct interactive tool to solve trade-related queries in best possible time.

The types of query which will be entertained under "e-Helpline" are:

1. Procedural issues of Import & Export clearance and other activities related to Jawahar Customs.

2. Issues related with Refund, Drawback, Licence, Any Permission/Application.

3. Status of NOC from other Government Agencies

The types of query which will not be entertained under "e-Helpline" are:

1. Seeking legal advice or clarification on any quasi-judicial or policy matters. Issues related to EDI or ICEGATE. (As there is a separate dedicated helpdesk)

2. Issues related to Classification/Valuation etc.

3. Complaint against any officer.

4. Complaint not under jurisdiction of Customs/JNCH.

The query will be replied through registered e-mail only, within a time frame of 48 hours. The time-frame will be calculated from the time of receipt of query by Administrative Authority during office working hours.

JN Custom House Standing Order No. 31/2015., Dated July 22 2015.

SCN Pending for 12 years - Will JNCH Reply?

WHILE the e-helpline project of the JN Customs is laudable, DDT has come across the following issue:

A Show Cause Notice was issued to an importer in January 2003 and the importer replied in June 2003 and that was the end of it. Of course in the meanwhile, the Customs collected a huge amount of duty from them as a pre-condition for release of the goods.

Since then, the importer had been pleading with the Customs to give a hearing or issue an adjudication order. In spite of periodic reminders, there is stoic silence from the Department. The importer had written three letters to the Chief Commissioner, with no result.

Now, under the JN Customs, there are six Commissioners - God knows where this file is and whether it can be recovered.

What kind of helpline should this importer make use of in getting his adjudication order, so that he can rush to the Tribunal?

Or should the importer seek information under the RTI Act, 2005 and then file a Writ before the High Court to get a decision as in this case - see 2015-TIOL-1668-HC-MUM-CUS .

Until Tomorrow with more DDT

Have a nice day.

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