TIOL-DDT 2925
07 09 2016
Wednesday

A protracted litigation that started sometime in 1988 resulted in a Supreme Court Judgment on 29.08.2016 - Commissioner of Central Excise, Madras Vs Addison & Co Ltd - 2016-TIOL-146-SC-CX-LB.

DDT 2919 30 08 2016 covered the issue.

Now, the CBEC has communicated the Supreme Court Order along with its understanding to all the Chief Commissioners of Customs, Central Excise and Service Tax and DRI and DGCEI, for information and necessary action.

The Board states,

As a result of said decision the law relating to manner of discharging the burden cast by section 11 B of Central Excise Act, 1944 on the assessee while claiming the refund of duty has been crystallized. It has been held that issuance of debit note by the claimant of refund in favour of his customer shall not be enough to discharge the said burden.

The Board's conclusion is patently wrong and misleading. And it certainly can't be a debit note. A debit note cannot be "in favour"; it is to collect money, not to pay it.

The Supreme Court had in the above case decided two issues:

1. To claim refund, it has to be proved that the incidence of duty has not been passed on, not just to the immediate buyer, but to the ultimate consumer.

2. Assessee is entitled for filing a claim for refund on the basis of credit notes.

In fact, in the very same order, the Supreme Court dismissed the revenue appeal where the refund was allowed by the Commissioner (Appeals) based on the credit notes, which was confirmed by the Tribunal and the High Court and finally in this order by the Supreme Court.

And Board says - no debit notes!

As such, the Supreme Court judgment is a big blow to the refund mechanism and Board seems to be planning to take away the small mercy allowed by the Supreme Court.

Who asked the Board for a clarification? They could have simply communicated the Supreme Court Order instead of creating confusion, which they should have left to the field. Now litigation will start all over again and may be decided after twenty years. Maybe the Board has a secret agenda of perpetuating litigation - after all, they all need their jobs and Principal Chief Commissioners. You can't simply avoid confusion and create unemployment.

CBEC F. NO. 1080/38/DLA/Legal/2016/., Dated: September 02 2016

Credit Notes, Debit Notes and Notes of Misunderstanding

CREDIT Notes and Debit Notes are simple accounting terms which any semi-literate accountant or businessman will easily understand, but somehow it is mostly misunderstood by brilliant Revenue officers and more brilliant lawyers and judges. In a judgement it was observed, "In the instant case, there was no such exchange of debit notes and credit notes. Of course, credit notes or cheques were issued by the assessee to their dealers. But the dealers did not reciprocate with debit notes. In this scenario, it cannot be held that the incidence of duty was actually passed on to the dealers."

In simple terms, a Credit note is issued to return any excess money to the other party, and a Debit Note is issued to collect extra money from the other party. In the context of refund applied by a manufacturer, the issue is whether issue of credit notes post clearance will pass through the test unjust enrichment.

The Model GST Law in Section 24 covers the Credit and Debit Notes as:

(1) Where a tax invoice has been issued for supply of any goods and/or services and the taxable value and/or tax charged in that tax invoice is found to exceed the taxable value and/or tax payable in respect of such supply, the taxable person, who has supplied such goods and/or services, may issue to the recipient a credit note ………

(2) Provided that no credit note shall be issued by the said person if the incidence of tax and interest on such supply has been passed by him to any other person.

(3) Where a tax invoice has been issued for supply of any goods and/or services and the taxable value and/or tax charged in that tax invoice is found to be less than the taxable value and/or tax payable in respect of such supply, the taxable person, who has supplied such goods and/or services, shall issue to the recipient a debit note …..

Section 24 (even the Section number matches) of the Jharkhand Value Added Tax Act 2005 and the VAT Acts of many States contain almost identical provisions.

So, the VAT authorities do understand what Credit Notes and Debit Notes are.

Share Service Tax with Railways

The Parliamentary Standing Committee on Railways in its Tenth Report to Parliament presented to the Lok Sabha Speaker on 31.08.2016, observed:

The Committee were informed that the service tax on specified classes of passenger travel and freight was introduced w.e.f. 01.10.2012, resulting in increase of cost of transportation affecting the business of the Ministry of Railways. The tax were to the tune of Rs.1478.10 crore and Rs. 3449.34 crore during 2012-13 and 2013-14, respectively. The Ministry of Railways had made several requests to the Ministry of Finance for exemption from payment of service tax on freight and fare anything, inter alia, that this would increase the overall cost of transportation. This, however, was not agreed to by the Ministry of Finance. However, the Committee understand that reimbursement of the service tax has not ever been sought by the Indian Railways for themselves. The Committee strongly feel that the service tax thus collected by the Ministry of Finance through Railways' freight and fare and other services should be shared with the Ministry of Railways. As such, they recommend that the Railways should pursue the matter vigorously with the Ministry of Finance.

This Committee is headed by Mr. Dinesh Trivedi, a former Railway Minister.

The Finance Ministry was trying to tax the services of the Railways since 2009 and they succeeded only in 2012.

I wrote in DDT 1952 28 09 2012,

The tax was imposed on transport of goods by Rail in 2009 budget. The Railways really never took the tax seriously. DDT spoke to several Rail Officials and they considered the tax to be a joke. In 2009, DDT asked a senior Railway officer whether they were ready to collect Service Tax on goods transport. He told us that the Finance Ministry has no right to levy Service Tax on Rail freight and he had no instructions to collect the tax. He said his Board does not recognise this tax. We tried to explain to him that this was an Act passed by Parliament, but he was not impressed. He was sure that it requires approval by his Board and as of now his Board was not too keen to approve the Finance Act. He was aghast that somebody is trying to tax the Railways! When told that Railways are already paying Service Tax on catering, he said it was paid by IRCTC and not by Indian Railways.

From 2009 till June 2012, the tax was being exempted on a quarterly basis and the tax would have come into force from 1st July 2012 under the new regime, but even without Didi, the levy was exempted till 30th September 2012. Now that Didi and her party are out of the complex coalition compulsion, the Government is free to levy the tax it wants. And the Railways have issued a Press Release that Service Tax is applicable from 1st October 2012.

Yes, the Railway Board did not recognize this tax for three years. I am aware of an interesting incident. In 2009, a CBEC Member went to the Rail Bhavan to meet a Member of the Railway Board to discuss the modalities of collecting service tax. The Rail Board Member haughtily told the CBEC Member, "I don't recognize service tax." The CBEC Member was so furious that he pushed back his chair, left his unfinished coffee (Rail Bhavan provides excellent coffee) and walked out in a huff. But the Rail Member was right - at least for three years.

Ministry of Finance has its advantages; it makes more money out of the Railways than even the Railways do.

ST - Renting of Precincts of a Religious Place

AS per Sl.No.5(a) in Notification No. 25/2012-ST, dated 20.06.2012, Services by a person by way of renting of precincts of a religious place meant for general public, are exempted.

Now this is amended to grant the exemption to renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961(hereinafter referred to as the Income-tax Act), or a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under clause (23BBA) of section 10 of the Income-tax Act.

Please also see 2013-TIOL-1450-CESTAT-MUM

Notification No.40/2016-Service Tax., Dated: September 06 2016

What are 'religious place' 'general public' and 'Precincts'?

PARA 2(zb) of the notification defines "religious place" as a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation, or spirituality;

Para 2(q) defines "general public" as a body of people at large sufficiently defined by some common quality of public or impersonal nature;

Now, what is the meaning of sufficiently defined? Who will sufficiently define it?

And what are precincts?

Since this term has not been defined in the notification, the Board makes a valiant effort to define it.

This seems to be a serious question. The CBEC answers it as:

Field formations may not take a restricted view of the word 'precincts' and consider all immovable property of the religious place located within the outer boundary walls of the complex (of buildings and facilities) in which the religious place is located, as being located in the precincts of the religious place. The immovable property located in the immediate vicinity and surrounding of the religious place and owned by the religious place or under the same management as the religious place, may be considered as being located in the precincts of the religious place and extended the benefit of exemption under Notification No. 25/2012-Service Tax, Sl. No. 5(a) dated 20.6.2012.

Board wants wide publicity to be given to this clarification so that the assessees and public are aware of this. All the major Industry and Trade Associations are also to be informed.

CBEC Circular No. 200/10/2016-Service Tax., Dated: September 06 2016

UP Trade Tax Act - Bitumen - bitumen emulsion would be covered by Entry bitumen - Supreme Court

YESTERDAY the Supreme Court delivered a judgment under the UP Trade Tax Act on the classification of bitumen emulsion. Bitumen emulsion comes into existence when bitumen is treated with emulsifiers and other chemicals to attain a liquid form. The Supreme Court observed,

When we apply the three tests, namely, identity, common parlance and end use to the goods and the Entry in question, bitumen emulsion would be covered by the Entry bitumen. It is worthy to note that bitumen emulsion matches the Entry as it is only one of the varieties of bitumen. Bitumen emulsion is processed bitumen, but the process has not changed its composition, commercial identity or its use. Bitumen emulsion is regarded and performs the same function as bitumen. As a result of processing, neither the primary character nor the composition is lost. Emulsification only eases and provides proficiency to the use of application of bitumen. Hence, in popular and commercial sense, bitumen emulsion is nothing but bitumen, which is in liquid form and is user friendly.

For more details, please see Breaking News

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

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

Obviously the answer is not all that simple. We will start answering this question tomorrow. In the meanwhile you can still send your answers to vijaywrite@tiol.in.

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in