TIOL-DDT 1016 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1016</font><br> 22.12.2008<br> Monday</strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Ban on Export of Cement Lifted</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government has lifted the ban on export of cement. All kinds of cement which includes clinker and slag cement are now allowed to be freely exported as per the amendment to the Export Policy.</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/dgft08not073.htm" target="_blank">DGFT Notification NO. 73(RE-2008)/2004-2009, Dated: December 19, 2008</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Supreme Court orders price reduction of Petrol in Sri Lanka</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Lanka IOC, a unit of Indian Oil Corporation, is cutting the retail price of petrol to 100 rupees a litre on an order by Sri Lanka's Supreme Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The government, expecting oil prices to continue climbing, had agreed earlier this year to buy all of its fuel at the price of USD 134 a barrel until next summer. In recent months, however, the price of oil has plummeted to under USD 38 a barrel. And this could cost the government as much as 775 Million Dollars.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">With oil prices plunging, the Supreme Court ordered the government to immediately reduce the state-set price of petrol from 122 rupees to 100 rupees (about USD 1). But instead, the court's orders have created a black market that sent the price in some places skyrocketing to 145 rupees a litre.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And there is a corruption angle here too.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The state-owned Ceylon Petroleum Corporation (CPC) entered into contracts with five banks led by Standard Chartered Bank (SCB), since January 2007, to protect itself against rising prices. When prices were over 135 dollars per barrel in mid-2008, the CPC was benefited as it had sought protection on the upside.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But with prices crashing after that and now at less than 40 dollars per barrel, the CPC ended up owing the banks and the latest liability could be as high as 1 billion dollars by May 2009, at current crude prices. If it falls to 25 dollars, as reported in the British Financial Times, the liability could be higher.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court, temporarily stopped CPC payments to the banks until two petitions, alleging fraud and corruption in the hedging deals were dealt with. The court suspended the CPC chairman and asked the President to consider replacing the petroleum minister, who has been accused of not properly supervising the CPC on the hedging deals.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Lanka banker said that head offices of these international banks would think twice before pursuing any legal action for non payments since these are highly questionable deals and raise ethical issues. If the CPC fails to make the payments, the local branches of SCB and CitiBank may lose millions of dollars.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Oil appears to be more problematic to the Sri Lankan Government than LTTE.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is also heard that a top Indian Company is in as deep trouble in this petro gambling.</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Economic Depression - Keynes' Keys - Should the survivor expire on a heap of gold?</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nobel Laureate, Paul Krugman said in 2006, "Over the past 70 years <em>The General Theory </em> has shaped the views even of those who haven't heard of it, or who believe they disagree with it. A businessman who warns that falling confidence poses risks for the economy is a Keynesian, whether he knows it or not. A politician who promises that his tax cuts will create jobs by putting spending money in peoples' pockets is a Keynesian, even if he claims to abhor the doctrine. Even self-proclaimed supply-side economists, who claim to have refuted Keynes, fall back on unmistakably Keynesian stories to explain why the economy turned down in a given year." </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Noted Economist, Gregory Mankiw says, "If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront. According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The situation reverses, Keynesian theory says, only when some event or policy increases aggregate demand. The problem right now is that it is hard to see where that demand might come from."</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To-day and presumably for the future the schedule of the marginal efficiency of capital is, for a variety of reasons, much lower than it was in the nineteenth century. The acuteness and the peculiarity of our contemporary problem arises, therefore, out of the possibility that the average rate of interest which will allow a reasonable average level of employment is one so unacceptable to wealth-owners that it cannot be readily established merely by manipulating the quantity of money. So long as a tolerable level of employment could be attained on the average of one or two or three decades merely by assuring an adequate supply of money in terms of wage-units, even the nineteenth century could find a way. If this was our only problem now-if a sufficient degree of devaluation is all we need-we, today, would certainly find a way.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Archaic language", says Krugman, "but he was describing a situation very much like the one we face now."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now all the politicians all over the world, who dare to talk of economy, are all Keynesians, more Keynesian than Keynes himself as Marx said, "I am not a Marxist. I am Marx". And Keynes was not a Marxist as he once told Bernard Shaw, "My feelings about <em>Das Kapital </em> are the same as my feelings about the <em>Koran</em>. I know it is historically important and I know that many people, not all of whom are idiots, find it a Rock of Ages and containing inspiration. Yet when I look into it, it is inexplicable to me that it can have this effect. Its dreary, out of date, academic controversialising seems so extraordinarily unsuitable as material for the purpose. But then, as I have said I feel the same about the <em>Koran </em>. How could either of these books carry fire and sword round half the world? It beats me."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is the Indian virtue of thrift a vice in these troubled times? Keynes explained the paradox of thrift in a speech over BBC in 1931, "For take the extreme case suppose we were to stop spending incomes, and were to save the lot. Why, everyone would be out of work. And before long we should have no incomes to spend and the end would be that we should all starve to death." And if wages are repeatedly cut in a depression, the last man will die on a heap of gold.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The natural response of individuals in such a depression is to increase their savings. And collectively this is a disaster. One man's saving is another man's reduced income. Therefore extra borrowing by government, if it encourages more output, can be self-financing in increased revenue. The key is <em>aggregate demand </em>. Normally it is possible to influence this by changes in interest rates to stimulate spending. But there is a level below which interest rates cannot go and at that point monetary policy is powerless. And even if interest rates are lowered it may not have any effect if people cannot or will not borrow. Keynes' revolutionary solution was that at this impasse aggregate demand can only be boosted by the Government borrowing more, either to spend directly on economically useful public works or to give to others to spend via tax cuts and other measures.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The impasse is a waste. Keynes had predicted that</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The economic system is naturally prone to periods of depression.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. When these periodically occur as they must, they are not necessarily automatically self-correcting.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Such depressions are not the result of choices by individuals.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Individuals <em>en masse </em> can become trapped in a depression which is in no one's interest, but which, as individuals, no one can counteract.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Even war could pay for itself as Keynes said in a 1939 article, "How the War could pay for itself".</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the economists (and we have an economist as PM and FM) know Keynes but can they follow him <em>mutatis mutandis</em>?</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBI arrests Police Inspector and Lawyer - Lawyer gets bail, Inspector doesn't - Police on the rampage</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strange things are happening as the year is coming to a close. Here is an interesting story.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ms Dhanalakshmi filed a complaint with a police station in Puducherry that a travel agent Ramesh had not returned her passport and some jewellery. Sub Inspector of police Sridhar promptly started the investigation and approached Ramesh and demanded a bribe of Rs. 5000/- for not registering the FIR. The Inspector wanted the bribe to be delivered through an Advocate. And this advocate pocketed Rs. 3000/- and gave only Rs. 2000/- to the Inspector! CBI laid a trap and arrested both the law MEN - the lawyer and the Inspector.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is another twist. Both the accused were produced in Court, where the lawyer got bail and the Inspector didn't. DISCRIMINATION - shouted the policemen. About 200 policemen staged a dharna outside the Court and shouted slogans and the Chief Secretary had to come to control the situation. Later in the evening, the policemen also got a fair deal - a bail for the Inspector.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In another case in Mumbai, the CBI arrested an Additional Commissioner of Income Tax, on a complaint by a Consultant that the officer was demanding a bribe of Rs. 10 lakhs from his client. CBI caught the Additional Commissioner red handed while accepting Rs. 4 lakhs. As a bonus, the CBI found additional cash of Rs. 8 Lakhs with the officer. No recession in corruption.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today we bring you an interesting article on "fighting corruption" by noted author KP Joseph.</font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8329" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See our TIOL TOP today.</font></strong></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Can a works contract be vivisected and service portion taxed?</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In one case the Ahmedabad Bench of CESTAT referred the matter to a third Member while in another case, the same Bench held that it cannot be vivisected.</font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our ST se GST tomorrow.</strong></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 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><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FEMA</strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FEMA - Procurement of foreign exchange for import of machinery under EPCG scheme - If goods are imported and warehoused for years without producing exchange control copy to authorized bank violation would come within the meaning of economic offence and not a technical lapse even if there is change in management - High Court</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant company's management changed hands wherein the assets and liabilities were taken over for a consideration of Rupees Six crores . The appellant company acquired foreign exchange of USD 35766 and French Francs 374000 for import of refrigeration machinery in their Hotel Industry under EPCG scheme. The Goods were imported in two consignments in the months of March and May 2000 and warehoused due to severe financial crisis and never cleared from the warehouse. The said import had been done against the EPCG License and incurred an obligation to earn foreign exchange up to four times the CIF value of the license.</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>Sec 40(a)(i) - payments to non-residents - TDS not confined to only interest, royalty and fees for technical services but also 'any other sum' provided income is chargeable in hands of non-residents; No TDS if non-residents have no business connection with India: ITAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION 40(a)(i)</strong> is a harsh Section in the Income Tax Act. If a tax resident of India is making a payment to any non-resident, one is as per the provisions of this Section, liable to deduct tax at source. If one fails to do so, the entire business expenditure is guillotined. But, is TDS to be deducted only on three payments like interest, royalty and fees for technical services? NO, says the Tribunal in its latest decision. It is because this Section does not stop at mentioning only three items and goes on to include 'any other sum chargeable under the Act'. In other words, any payment made to non-residents comes within the sweep of the provisions of this Section provided it is chargeable to tax under this Act in the hands of the non-resident.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CESTAT rejects ROM application filed in pursuant to Supreme Court direction - Tribunal has inherent power of recalling its own order - Supreme Court</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is true that the period of limitation specified in terms of Sub-Section (2) of Section 129(B) of the Customs Act is required to be observed but the Tribunal failed to notice that it <strong>has inherent power of recalling its own order </strong> if sufficient cause is shown therefore. The principles of natural justice, which in a case of this nature, in our opinion, envisage that a mistake committed by the Tribunal in not noticing the facts involved in the appeal which would attract the ancillary and/or incidental power of the Tribunal necessary to discharge its functions effectively for the purpose of doing justice between the parties, were required to be complied with.</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> </body> </html>