TIOL-DDT 2924
06 09 2016
Tuesday

TEN years ago, the now famous Supreme Court Judge, Justice Chelameswar, as a judge of the AP High Court delivered a landmark judgement on the VAT payable by a main contractor or sub-contractor for a works contract - 2006-TIOL-327-HC-AP-VAT.

There are three parties here.

1. Employer who has entrusted a works contract to the main contractor

2. Main Contractor

3. Sub-contractors, to whom the main contractor has entrusted the work.

The question before the High Court was, "who should pay VAT?" - the Contractor or the sub-contractor or both.

Whether in a transaction of entrustment of a works contract by the contractor to the sub-contractor, there is one taxable event under the VAT Act or two.

Revenue argued that there are two deemed sales - one from main contractor to contractee and the other from sub-contractor to the main contractor.

The High Court observed,

The sub-contractor is only an agent of the contractor and the property in goods passes directly from the sub-contractor to the employer and therefore there can only be one sale.

To hold that there are two taxable events in such a transaction, enabling the State to levy and collect tax both from the sub-contractor and the contractor would be violative of Article 14 also for the reason that wherever a contractor executes a works contract himself without employing the sub-contractor the deemed sale of goods involved in such execution of works contract would attract the tax only once and whenever the contractor employs a sub-contractor, the transfer of property in the same goods involved in the execution of such works contract attracts the tax twice over, which is plainly irrational and violative of Article 14 of the Constitution of India.

Two years later the Supreme Court upheld the AP High Court's judgement. We reported this case as  2008-TIOL-158-SC-VAT

The issue is again before the Supreme Court, this time from the State of Karnataka on the Karnataka VAT.

The Supreme Court yesterday followed its earlier 2008 decision and held that the value of the work entrusted to the sub-contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section 6-B of the Karnataka Act.

Is this decision of the Supreme Court applicable to Service Tax? A Larger Bench of the CESTAT reported as 2015-TIOL-768-CESTAT-BANG-LB followed the Supreme Court Judgement and held "where under an agreement (whether termed as a works contract, turnkey or EPC project contract), the principal contractor, in terms of the agreement with the employer/ contractee assigns the works to a sub-contractor and the transfer of property in goods involved in the execution of such contract passes from the sub contractor by accretion to or incorporation into the works, the principal contractor cannot be considered as having provided the taxable (works contract) service, enumerated and defined in Section 65 (105)(zzzza) of the Act."

Please also see DDT 2540 17 02 2015 and DDT 2588 30 04 2015

For more details on yesterday's judgement, please see Breaking News.

Service Tax - Exemption to service provided by Government - Telecom service provider

AS per Sl. No. 62 in Notification No. 25/2012, dated 20.06.2012,

Services provided by Government or a local authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency Spectrum during the financial year 2015-16 on payment of licence fee or Spectrum user charges, as the case may be;

are exempted.

Now this is amended to make it applicable for the period prior to 1st April, 2016 instead of during the financial year 2015-16.

Notification No. 39/2016-Service Tax., Dated: September 02 2016

Free movement of vehicles across Bangladesh, Bhutan, India and Nepal (BBIN)

A new chapter in trade relations and people to people contact between India, Bangladesh, Bhutan and Nepal was initiated yesterday (5th September 2016), as a Bangladeshi truck laden with imported consignment of readymade garments, rolled into Customs Inland Container Depot, Patparganj, Delhi. Though the vehicle entered India through Petrapole Land Customs Station, the customs clearance has been done at ICD, Patparganj. The vehicle was affixed with GPS tracking equipment at Petrapole and the cargo was sealed electronically. This helped in live tracking of the vehicle as it moved from Petrapole to New Delhi, with an alert mechanism in case of any attempt to tamper with the cargo. The vehicle was allowed movement under a bond without imposing any additional requirements such as bank guarantees.

In a function at ICD Patparganj, Delhi Customs Chief Commissioner Vivek Johri said, "This is yet another measure in a series of trade facilitation initiatives taken by the Government recently to help businesses cut transaction costs. The compulsion to tranship goods at the borders with our neighbouring countries has been a major and longstanding pain point hindering free flow of trade. The measure would not only relieve that pain but also allow the BBIN region to more fully exploit its potential for integration through trade."

Customs - Objection raised by Dock AC & Appraisers about price after passing through RMS

A point was raised in a recent PTFC Meeting of JN Customs that the Dock AC and Appraisers raise an objection about the price after passing through RMS, where duty is paid and D.O. is also obtained. Even after necessary logistics for clearance of goods is done, they have been asking to re-send Bill of Entry to Group for further price verification which leads to difficult situation foran importer (often increasing logistic cost & Order cancellations).

The Department replied, "department is progressively increasing the facilitation level in the clearance of the Bills of Entry and aims to achieve 90% facilitation in this regard. Accordingly, with such increased facilitation, the Out-of-Charge Officer has the mandate to verify not only the valuation aspect but also the compliance of requirements of Allied Acts viz. BIS or any other licensing requirements. Any objection is being forwarded to Group only with the approval of the Additional Commissioner of Customs, Docks. Trade should be aware of the prevailing assessment practices being followed by the Groups."

In this regard, it was also informed that Docks Officers have been directed to refrain from taking frivolous objections. It was also informed that Trade can always meet the concerned Additional Commissioner of Customs in case any Officer is acting unreasonably and they are facing any difficulty in clearance of the goods. It was also informed that they can also approach the concerned Commissioners of Customs in case they feel that their grievances have not been properly addressed.

Customs - Monitoring and Accountability

IN the same meeting, it was submitted:

Notwithstanding the fact that the Customs Department has taken several steps at simplification at the Policy level, much needs to be done at the operational level. Here strong processes need to be laid down at monitoring delays in clearance at the Customs level. A systematic approach to be taken to suo moto do such monitoring by senior officials at least at the Additional Commissioners or Commissioners level. Such cases of delay be studied in depth and accountably fixed. In case, it is found that the delay was due to wrong application of certain parameters by the officials concerned, then a disciplinary and /or vigilance inquiry be instituted.

If there are continuous complaints against a particular official suitable disciplinary action, in consultation with CBEC, be taken. Customs Department plays a very important role in the management of the country's foreign trade and hence the steps mooted above assume tremendous importance.

The Department replied,

+ Specific time has been allocated to attend taxpayers for expeditious redressal of their grievances on Wednesdays (9 A.M. to 1 P.M.) as ‘Wednesdays' has been designated as Taxpayers' day

+ All Senior Officers including all the Commissioners are available all days of the week and any person can approach them anytime in case of any difficulty.

+ They have a system in place for monitoring the behaviour and activities of the Officer. Performance of the Officers is monitored continuously and the same is appropriately reflected.

+ In case anything adverse is being noticed against any officer, necessary action is being initiated to discipline the concerned officer.

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DDT Question - What is the Constitutional Authority for levy of Service Tax?

IT's a long time since DDT asked a question to the Netizens. While so much noise is being made about GST, the fundamental question is:

What is the authority to levy Service Tax? How is the Central Government competent to collect Service Tax?

We are eagerly waiting for your reply at vijaywrite@tiol.in

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in