TIOL-DDT 1013 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1013</font><br>
17.12.2008<br>
Wednesday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Foreign Service Provider and Indian Tax payer - since when? - Latest Bombay High Court Order in TIOL Today</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Foster Wheeler Energy Ltd </em> case - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2007/2007-TIOL-785-CESTAT-AHM.htm" target="_blank">2007-TIOL-785-CESTAT- AHM</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>, </strong> the
Tribunal had held that <em>Foreign </em> Service Tax cannot be levied prior
to 18.4.2006.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the <em>Hindustan Zinc </em>case - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2008/2008-TIOL-1149-CESTAT-DEL-LB.htm" target="_blank"><strong>2008-TIOL-1149-CESTAT-DEL-LB</strong></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">, a Larger Bench of the Tribunal headed by the President held that, <em>"the taxable service provided by a non-resident or from outside India, who does not have any office in India, having been specified as 'taxable service' with effect from 1.1.2005, under notification No.36 /2004, recipient of such service could not be held liable for paying service tax prior to 1.1.2005 notwithstanding the amendment in rule 2(1)(d) of the Service Tax Rules under notification no. 12/2004."</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These columns had explained the provisions in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5736" target="_blank">TIOL-DDT 652 09.07.2007</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the Bombay High Court has emphatically held that no tax could be collected on the services received abroad prior to 18.4.2006. The High Court held that till 18.4.2006, the Revenue had no LAW to collect the tax and as per the constitution, no tax can be collected except by authority of law.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court held, "<strong>Before enactment of Section 66A it is apparent that there was no authority vested by law in the Respondents to levy service tax on a person who is resident in India, but who receives services outside India</strong>. In that case till Section 66-A was enacted a person liable was the one who rendered the services. In other words, it is only after enactment of Section 66-A that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Hundreds of cases on this issue are pending at various stages from Assistant Commissioner to High Court. Maybe the Board should now graciously accept this High Court judgement and issue a clarification that the <em>foreign tax </em> is applicable only from 18.4.2006 and close all the pending cases.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
present CBEC Chairman will go down in history for his bold step in issuing
a Section 37 B order - <strong>F.No. 166/13/2006- CX.4 dated the 12th March,
2007, </strong>clarifying that abatement in respect of GTA cannot be denied
to recipients of service who pay the tax and thereby he closed more than
30,000 Show Cause Notices. He had ordered that demands need not be issued
even if there are CAG objections.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is another opportunity for the dynamic Chairman to come up with another such order in respect of this <em>foreign service </em> so that a lot of unwanted litigation can be avoided. Of course the consultants will lose some money - but that is a small price to pay for the larger welfare of society.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See our <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8308" target="_blank">Breaking News</a> </strong> for the latest High Court order.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FTP - 'Casein' not eligible for VKGUY benefits</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT has reiterated that export of 'Casein', as mentioned in Public Notice No <a href="http://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2008/dgft08pn005.htm" target="_blank"><strong>5(RE2008)/2004-09 </strong></a>dated 17.4.2008, was not eligible for VKGUY benefits since it was never listed in Appendix 37A.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Consequently, for exports made w.e.f 11.12.2008, export of Milk and value added Milk Products (covered under ITC HS codes 0401 to 0406, 19011001, 19011010 & 2105) shall be entitled to VKGUY scheme benefits.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2008/dgft08pn116.htm" target="_blank">DGFT Public Notice No. 116 (RE-2008)/2004-2009, Dated: December 15, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FTP - Elastomeric - FREE</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government has amended the Import Policy for the item, Elastomeric under Exim Code No. 5402 44 00 as "Free" (instead of Restricted). This amendment shall be applicable from 24.11.2008.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=45&filename=notification/dgft/2008/dgft08not072.htm" target="_blank">DGFT Notification No. 72 (RE-2008)/ 2004-2009, Dated: December 16, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Rupee Export Credit Interest Rates</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government of India has decided to extend Interest Subvention of 2 percentage points w.e.f. December 1, 2008 till March 31, 2009 on pre and post shipment rupee export credit, for certain employment oriented export sectors as under:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Textiles (including Handloom)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Handicrafts</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Carpets</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) Leather</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) Gems and Jewellery</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vi) Marine Products, and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vii) Small & Medium Enterprises</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the existing guidelines, banks charge interest rate not exceeding BPLR minus 2.5 percentage points on rupee pre-shipment credit up to 270 days and post-shipment credit up to 180 days. Banks will now charge interest rate not exceeding BPLR minus 4.5 percentage points on pre-shipment credit up to 270 days and post-shipment credit up to 180 days on the outstanding amount for the period December 1, 2008 to March 31, 2009 to the above mentioned sectors. However, the total subvention will be subject to the condition that the interest rate, after subvention will not fall below 7 per cent which is the rate applicable to the agriculture sector under priority sector lending. The banks may ensure that the benefit of the 2 per cent interest subvention is passed on completely to the eligible exporters.</font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/rbi_notification.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DBOD.Dir.(Exp). BC.No . 101/04.02.01/2008-09 Dated: December 16, 2008</strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Education Service Tax in Nepal</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is hardly anything to tax in Nepal and they have recently introduced an education tax, which was promptly challenged in the Supreme Court. Prime Minister Pushpa Kamal Dahal 'Prachanda' yesterday stated that the decision of the government to levy education tax on private schools was not against the government's policy of free education.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The PM stated that as only the children of higher class people study in private schools, the tax would not hit the lower class people. "The government will allocate a budget for the public schools to ensure free education to the children in the remote areas after collecting the five per cent of EST from private schools," he added.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise Duty reimbursed to Exempted SSI Units - CAG</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CAG's Audit of Andhra Pradesh State Irrigation Development Corporation Limited states,</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the prevailing system in Andhra Pradesh State Irrigation Development Corporation Limited (Company), component of Central Excise Duty (CED) was shown as part of Estimated Contract Value (ECV). However, the Company was reimbursing the CED only after obtaining documentary proof of payments from suppliers. The Company (March 2005) modified the system of inclusion of CED in ECV and decided to indicate the same under Schedule III, Part A of tender conditions. The production of documentary proof of payment of CED remained unchanged.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">For the contracts entered prior to modification of the procedure and pending for payment, the Company issued a clarification (July 2005) based on orders (June 2005) of Government of Andhra Pradesh to release the CED to the contractors and obtain only an undertaking that there should not be any additional commitment to the Government/Company.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">It was seen that as a result of this clarification, the Company reimbursed (during 2005-07) CED amounting to Rs. 1.09 crore to units (Small Scale Industries) which are normally exempt from payment of CED. In addition, Rs. 3.21 crore was reimbursed to Non-SSI units without insisting on any documentary proof of payment of CED.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government accepted (July 2008) the observation and initiated corrective action by ordering the collection of documentary evidence or recover the CED reimbursed.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When the CAG audits these SSI units, it will be pointed out that the amounts are to be recovered under Section 11D of the Central Excise Act.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IMF Back in Business</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suddenly, thanks to the global financial meltdown, the IMF and its French boss, Dominique Strauss-Kahn, are back in business. The bank's chests may not have enough cash to meet the new demand. The Fund has about $200-billion to lend, a pittance compared with the massive losses in the global banking industry.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Speaking in Madrid yesterday, Dominique Strauss-Kahn, the Managing Director of the International Monetary Fund said, "This is an interesting time to talk about the future of the IMF, because this is a time of great change, when the future of the International Monetary Fund—and of many other institutions—seems fluid and uncertain."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He added:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Of course, the IMF has lived through other uncertain and chaotic times. Indeed, the Fund was born out of the economic and political chaos of the period between the wars: the failed attempts to impose order on the global economy in the 1920s, the Great Depression, which followed that failure, and the World War that followed the depression.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The desire of the founding members of the IMF to avoid a repeat of this chaos explains the objectives that they gave to the Fund, reflected in the Articles of Agreement, to promote global financial stability and to help members to adjust their balance of payments "without resorting to measures destructive of national or international prosperity".</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These objectives remain valid today, as we try to manage another chaotic period in the global economy. The question is how to do it, in a global economy which is very different from that of the 1940s.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All around the planet, the people of the world have reacted to the crisis with feelings going from surprise to anger and from anger to fear. It is our responsibility to help building a world based more on humanity and cooperation than on opacity and greed."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally money is not the only concern for the IMF Chief who is a former Finance minister of France. He is embroiled in a sex scandal with a former married colleague, which the IMF is investigating.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">- Tomorrow's cases</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise - destruction or loss of goods, by natural causes or unavoidable accident, is essentially a subjective satisfaction - No question of Law - Supreme Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> the very nature of things, contemplated by Rule 21, the aspect of satisfaction, about the destruction or loss of goods, by natural causes or unavoidable accident, is essentially a subjective satisfaction of the authority concerned, and that having been recorded by the Tribunal, it is a pure satisfaction of fact, altogether subjective.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tax-free dividend income - disallowance u/s 14A - onus to prove that no part of expenditure attributable to such income was directly or indirectly incurred, lies with assessee - ITAT disallows part of administrative expenses incurred in relation to such income</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is common knowledge that if an income does not form part of taxable income, expenditure incurred in relation to such income is also not allowable as deduction. But deciding the disallowable component of such expenditure is a ticklish job, and often leads to protracted legal battles. However, in the latest decision, the Delhi Bench of the Tribunal has held that the onus to prove that no part of expenditure is attributable to such tax-free income lies on the assessee. And since the assessee failed to produce adequate evidence in this regard, the tribunal has disallowed a part of administrative expenses, direct as well indirect, incurred in relation to such income in harmony with Rule 8 and Sec 14A of the Income Tax Act.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tribunal deprecates the order passed by CCE and remands the case</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FINDING</strong> that it was not discernible from the manner in which the adjudicating authority was convinced with the submissions made by the assessee; that there was nothing to indicate that he had examined the applicability of the case law, the <em>Bench deprecated the order </em>passed and accordingly remanded the matter.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns tomorrow for the judgements</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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