TIOL-DDT 456
25 09 2006
Monday

And so is FICCI! The Board clarification says that even if an organisation is exempted under IT Act as a charitable institution, it need not automatically go out of the purview of Service Tax.

As per the Act,

(25a)  “club or association” means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include—

(i) any body established or constituted by or under any law for the time being in force; or

(ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or

(iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or

(iv) any person or body of persons associated with press or media;

Now are the activities of Bar Council of India or FICCI charitable in nature? Income Tax Department would say, “yes”, but not Service Tax.

The recent clarification given by the Commissioner, Service Tax in the Board says,

++Exemption under the Income Tax Act on the ground of being a public charitable institution is of no consequence to levy of service tax. Levy of service tax is entirely governed by the provisions contained in the Finance Act, 1994 and the rules made there under.

++ The definition of “charity” and “charitable” as defined in Black’s Law Dictionary may be kept in mind. “Charity” is defined as “aid given to the poor, the suffering or the general community for religious, educational, economic, public safety, or medical purposes”, and “charitable” as “dedicated to a general public purpose, usually for the benefit of needy people who cannot pay for the benefits received”.

++The officer concerned should examine the matter on a case-by-case basis, and the decision should be made after taking into account all material facts and statutory provisions.

He does not clarify whether FICCI is liable to pay Service Tax. He wants the officers to take a decision after taking into account all material facts. Now what will happen if the officer in Bangalore decides that FKCCI is not liable to pay Service Tax and the officer in Hyderabad decides that FAPCCI is liable to pay tax? Why can’t the Board give a clear clarification this way or that?

Even Black’s Law Dictionary, which the Board quotes, defines charitable as “dedicated to a general public purpose, usually for the benefit of needy people who cannot pay for the benefits received”. It is primarily “dedicated to a general public purpose” and is “usually for the benefit of needy” – It need not always be for the benefit of the needy. In unusual cases it can be for the benefit of the greedy - like advocates for instance.

The heading of this piece is not really correct. Bar Council of India is not liable to Service Tax with or without charity, as it would be excluded in the first clause - any body established or constituted by or under any law for the time being in force, but Bar Associations and Advocates’ Associations will be liable.

And that still makes FICCI and CII liable to tax. Or why can’t they define charity in the Service Tax statute or say that it has the same meaning as in the Income Tax Act? In the name of clubs, did the government really want to tax trade associations and flat welfare associations?

Board Circular No. 84 /2/2006-ST   Dated 19^thSeptember, 2006

Drawback – value addition in case of free materials

In the business of exports, sometimes the main raw material is supplied ‘free of cost’ by the overseas buyer for maintaining the quality of the final product. In such cases the notional value of the ‘free of cost’ material is declared to Customs only for the purpose of payment of duty and the same is not included in the export value (FOB value) of the product,  the reason being that no realization takes place for such notional value of ‘free of cost’ material.

It has been reported that while calculating value addition in such cases, the notional value of ‘free of cost’ material is added to the CIF value of other inputs but not to the FOB value of export goods.  This results in the FOB value of export goods becoming less than the CIF value of imported materials.  As the value addition works out to be negative the exporters are denied the facility of drawback although duties have been paid on the imported materials.  The trade and industry has represented that in such cases the notional customs value of the material supplied ‘free of cost’ should be added both to the export value (FOB value) of goods and the CIF value of inputs for the purpose of calculation of value addition.

Board has observed that:-

++ for the sake of equity the value of the ‘free of cost’ material should be added both to the FOB value of goods and CIF value of materials or this value should not be added to the FOB and CIF values at all. 

++ If this is done, the value addition in most of the cases would be positive, entitling the exporters to avail of the facility of duty drawback.

++ However, in terms of paragraph 4.6 of the Handbook of  Procedures, Vol-I  of the Foreign Trade Policy, under advance licensing scheme, where some materials are supplied free of cost, the value addition is computed by adding the notional value of ‘free of cost’ material to both the CIF value of imports and FOB value of exports.

And so to ensure uniformity in the matter, Board has decided that :-

for the purpose of calculation of value addition under brand rate claims, the notional value of imported materials supplied ‘free of cost’ by the foreign supplier should be added both to the CIF value of inputs and the FOB value of export goods.

CBEC CIRCULAR No.25/2006 –CUSTOMS Dated the   19th September, 2006

e-payment of Service Tax – we are as ignorant as you are.

Our Netizen reporters – assessees report for TIOL

We asked some of our netizens who are also Service Tax assessees to report to us after ascertaining from Service Tax officers and banks on how to go about e-payment of Service Tax.

Here’s what they reported:-

Bangalore:

An assessee called up a Joint Commissioner, Service Tax in Bangalore to find out the procedure of paying Service Tax electronically. “ we are as ignorant as you are.”, said the honest Joint Commissioner. Of course he was kind enough to clarify that it was a banking procedure and the banks should be able to give better information. The assessee also called up the PRO who said,” first you have to register with the bank, the bank will give you an user ID and password. There would be no extra charges for availing this facility. Rest the bank will explain. He also gave the banks which would be giving this service in Bangalore: SBI, Syndicate Bank, UTI, SBM, Corporation Bank, Vijaya Bank, Canara Bank, HDFC Bank

Chennai:

A Superintendent told our amateur reporter that he would need a PAN card and a PAN Based Common ID and a current account in a bank which is providing the service. He also said that in today’s issue of Indian Express they have published an ad for the same.  He said that the rest of the details are available in trade notice number (ST) 10/2006 dated 10th August 2006. He said that all these information is available in http://Centralexcisechennai.gov.in. Our assessee reporter who was enjoying the new role crosschecked the web site and found that the trade notice was not there in the site. He informed the Superintendent about this and the Superintendent informed that it would be uploaded in half an hour. He however explained the procedure. The assessee checked the web site after an hour and the trade notice was indeed uploaded.

Ahmedabad:

Here our assessee talked to the Commissioner who told him that he had to pay through internet only if he had a Service Tax of over Rs. 50 Lakhs. She said that details could be had only from the banks. She added that in Ahmedabad, SBI and Bank of Baroda are giving this service.

Mumbai

Our Mumbai assessee spoke to a Superintendent who had a fund of information.

++ the details are there in PNB bank’s site. Our reporter did not find it.

++ Presently the services need to be connected through the IC gateway and then only the department will have proper records.

++ I don’t know much about the service

++The infrastructure with the department is not in place and it will take another 8-10 days time to do so.

Delhi:

This is what the assessee told us,

“I called up Delhi ST but in the commissioner's office, the lady asked me to call to the technical department. She gave me the number xxxxx and contact Mr.xxxxxxxx In this number no one responded the call (from 12:30 pm till 4 pm I tried every half an hour.0 Later I also tried one JC number but he was not in the office and his PA told me to call after an hour or so.

How did the banks respond?

Our reporters also contacted some of the banks and this is what we learnt.

Bank of Baroda, BhikajiCamma Place branch in New Delhi

A lady officer informed that they have received the software for the services (50 lakh criteria). However the employees need to be trained for the same and the software need to be installed. She further said that because of the process of half yearly closing, they are not able to do much about it. And probably only after the half yearly closing they will install the software and train the employees about it. She also added that a ‘Dry Run’ of the software would be done and then only BoB would go for a full-fledged service. All this process will take not less than 10-15 days.

Parliament Street Branch

Our reporter spoke to the Chief Manager who said that the software needs to be loaded. It will take another week or so to implement the whole process. He added that after the software is in place all the 400-500 branches having the core banking facility could give the services.

State Bank Of India – the well informed bank.

The most positive and accurate information came from the SBI. Its GM, government business, Mishra told our assessee reporter that the facility of e-payment of Service tax was always there. The only difference now (after October 1st) is that it is now mandatory for those who pay more than Rs. 50 Lakhs. Even others can pay through the net.  He said that the assessee has to feed in his 15 digit assess code provided by CBEC and the master record would automatically fill up the form and the assessee will have to add just a few fields. MrMishra added that if any one needs information about electronic format of taxation through SBI then they just need to send a mail toetax@sbi.co.in and in reply an automated response would come to the sender, which will have all the information (including service tax e-filing).

Our reporter tried the mail and within seconds he got a response.

Thank you, Mr. Mishra! There is at least one officer who is aware of what this is all about. Why are we not mentioning any other names? Obviously to protect the guilty!

Should CBEC rush into e payment with such pathetic levels of ignorance?

We asked the assessees who contacted the department on the procedure whether they would be paying Service Tax through the net in October. Not one of them replied in the affirmative. “I would rather pay interest rather than get my money blocked in this confusion”, was the unanimous opinion.

Incidentally are the banks liable to pay Service Tax for collecting tax on behalf of the government?

Until tomorrow with more DDT

Have a nice day.

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