TIOL-DDT 1043 · 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 1043</font><br> 02.02.2009<br> Monday</strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Stimulus to Real Estate Sector – No Service Tax on Sale of Flats - Board Clarifies</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The weekend saw the Board dropping two powerful Circulars - one mighty pleasing and the other embarrassingly revolting.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">First the good One.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This can be compared with a stimulus package. The clarification given by the Board on 29.1.2009 is historic and will be a boon to the real estate sector in no less magnitude than the interest rate cut on home loans. Hopefully, the clarification will also put an end to the confusion in the minds of the builders, revenue officers and most importantly, the flat buyers.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Construction of complex service (the statutory name for construction of buildings with more than 12 flats) has a chequered history. There is view that there is no service involved and it amounts to sale of flats. In fact, the Department had issued a circular earlier on similar lines vide Circular 96/7/2007-ST, Dated : August 23, 2007 by brining the concept of self service by clarifying that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder/promoter/developer/any such person) shall be liable to pay service tax on the gross amount charged for the construction services under ‘construction of complex' service [section 65(105)(zzzh)].</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) If no other person is engaged for construction work and the builder/promoter/developer/any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,-</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) service provider and service recipient relationship does not exist,</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) services provided are in the nature of self-supply of services.Hence , in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services, the question of providing taxable service to any person by any other person does not arise.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But, when a case came up before the Authority for Advance Rulings, in the case of M/s <em>Harekrishna Developers - </em><strong>[<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=190&filename=legal/ara/2008cus/2008-TIOL-03-ARA-ST.htm" target="_blank"><font size="1">2008-TIOL-03-ARA-ST</font></a>]</strong>, revenue argued against its own Circular dated 23.8.2007 and got a favourable answer to the question framed that undertaking the construction on an identified plot and handing over the constructed unit to the customer on receipt of the entire consideration is a taxable service. The revenue distinguished the above circular on the ground that:</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>The clarification issued by the Deptt . of Revenue (TRU), Ministry of Finance in its circular dated 23/8/07 does not endure to the benefit of the applicant as the Circular details a case where the residential complex is constructed by a builder/developer on his own and on completion thereof the transaction is entered into with the buyer resulting in the sale of <strong>an already constructed unit.</strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Then came the famous <em>Magus Construction (P) Ltd </em> case <strong>[<font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2008/2008-TIOL-321-HC-GUW-ST.htm" target="_blank">2008-TIOL-321-HC-GUW-ST</a></font>] </strong> where the Guwahati High Court held that the sale of flats cannot be taxed under construction service.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, with the new Circular, things will be more clear, since it has been amply clarified that only the services of contractors who undertake the construction of flats and who provide various incidental services like design etc are taxable, but no service tax is leviable on the sale of flats to the ultimate buyer, notwithstanding the ruling by the Authority for advance ruling. (Then why did they vehemently oppose this argument of the applicant before the Authority For Advance Ruling?)</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In between there was a tamasha created by the DGST , wherein he relied on a Supreme Court Judgement in <em>Raheja Development Corporation Vs State of Karnataka </em><strong> [<font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2005/2005-TIOL-77-SC-CT.htm" target="_blank">2005-TIOL-77-SC-CT</a></font>] </strong>and held that Service Tax was payable. He even issued an ultimatum to the Board. Please see <strong>[<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3333" target="_blank">TIOL-DDT 309-23 02 2006</a>].</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Having given this Circular, the Board should also graciously accept the Gauhati High Court order and should not contemplate filing any appeal. Otherwise, the purpose of this circular will be defeated.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We should not look a gift horse in the mouth. Though one of our eminent authors has not taken kindly to the Board Circular (see our <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8521">ST se GST Tak</a></strong>), let's not bother whether the Board is right or wrong – the fact is they have given a clarification favourable to the trade and let us gratefully accept it. Whatever be the legal intricacies, the fact is that the Government has the right to tax or not to tax and why should we worry if they decide not to tax a particular activity?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Twist in the Tale: </strong>In the whole country there is now only one assessee who is liable to pay Service Tax on this activity - <em>Harekrishna Developers.</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In an apparent reference to the <em>Harekrishna </em> case of Advance Ruling, the Board Circular states, “ <em>Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only.”</em></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=41&filename=notification/servicetax/2009/sercir108.htm" target="_blank">CBEC Circular No. 108/02/2009 – ST Dated: 29th January 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax on Educational Institutions – CBEC v CESTAT – Tribunal thrown over BOARD</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is strange that while the Board is kind to the builders, it is harsh to educational institutions.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a detailed and lengthy clarification, Board has held that</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>The word “Commercial” used in the phrase is with reference to the activity of training or coaching and not to the nature or activity of the institute providing the training or coaching. Thus, services provided by all institutes or establishments, which fulfils the requirements of definition, are leviable to service tax.</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Many a time private institutes conduct courses and issue diplomas or certificates in collaboration with certain foreign institutes/universities. In many cases private enterprises conduct campus interviews of the students of such institutes and offer them jobs. Such certificates/diplomas may be accepted for higher education abroad. However, such a certificate/diploma cannot be called as the one ‘recognized by the law for the time being in force' unless such a diploma/ certificate has been specifically recognized by the statutory authorities such as UGC, AICTE. Consequently, such institutes would not fall under the exempted category and would be subjected to tax.</em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CESTAT, Chennai and Bangalore Benches in several decisions had emphatically held that charitable organisations were not commercial coaching centres.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Obviously, the Board does not agree. But when the Board does not agree with the CESTAT order, what they should do is to appeal to the higher judicial forum. But Board with utter contempt for judicial discipline has chosen to give a circular over-ruling the CESTAT decisions.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Any circular of the Board against a CESTAT decision is simply not valid. Then why this exercise of issuing circulars which are meant to be struck down?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe the lawyers, who must be losing several cases because of the Board's beneficial circular for the builders, must be compensated and so they are offered tons of cases through this circular.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In any case <strong>IS IT FAIR FOR A GOVERNMENT TO TAX EDUCATION?</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <strong><em>Malappuram District Parallel College Association </em></strong>case - <strong>[<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2006/2006-TIOL-35-HC-KERALA-ST.htm" target="_blank"><font size="1">2006-TIOL-35-HC-KERALA-ST</font></a>] </strong>the Kerala High Court observed,</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">“Of course, article 41 also provides that the State shall within its economic capacity and development make effective provision for securing the right to work to education and to public assistance in cases of unemployment, old age, etc. There is certainly force in the contention of the petitioners that even if the State is not able to finance higher education as required under the Directive Principles of State Policy under article 41 of the Constitution, <strong>it should not deny and discourage opportunities for education by adding cost to it in the form of tax on education which will certainly disable the economically weaker sections from pursuing higher studies </strong>. Addl. Solicitor General of India appearing for the respondents submitted that so many educational institutions are mushrooming and education is carried on as business. Therefore, according to him, there is no illegality or even impropriety in levying tax on such educational institutions. I am unable to appreciate this apprehension of the Government because this malady has to be corrected only by levying income-tax on the institutions and not by licensing the institutions to collect service-tax from students. In fact section 10(22) of the IT Act which granted blanket income-tax exemption for educational institutions is now deleted and exemption is provided with moderation in section 10(23C) of the said Act. Of course, section 11 of the IT Act which provides cover to large number of tax evaders under the guise of charity will continue to protect educational institutions as charity includes education also. If education is run on business lines, then solution is to amend section 11 and other relevant provisions of the IT Act withdrawing the exemptions to institutions and Government can simultaneously provide financial aid to beneficiaries which will put an end to misuse of income-tax provisions. Therefore I do not think the levy of service-tax on students will serve the purpose of disciplining those who make business out of education. <strong>Tax on education, particularly when the incidence of tax is passed on to the beneficiaries, that is, the students, is a regressive legislation and has to be condemned, more so, when large number of poor people seek salvation through education and employment</strong>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The students in these so called <em>commercial coaching </em>centres are the less fortunate among the student community who could not exploit State-subsidised education and if these commercial coaching centres are fleecing the students, it is unfair, unjust and unsocial for the State also to join to extract its pound of flesh.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>If Government cannot finance education, the least it should do is to avoid taxing it.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See also our <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8528">Guest Column</a> </strong> today</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="CBEC%20Circular%20No.%20107/01/2009%20–%20ST%20Dated:%2028th%20January%202009" target="_blank">CBEC Circular No. 107/01/2009 – ST Dated: 28th January 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC notifies exchange rates for FEBRUARY 2009</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC has notified the Exchange Rates for Imported Goods and Export Goods with effect from 1st February 2009. Notification No <strong>. </strong>140/2008 (NT)-CUSTOMS, Dated: December 29, 2008 , is superseded.</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=24&filename=notification/custom/2009/cnt09_018.htm" target="_blank">Notification NO. 18/2009 -CUSTOMS(NT), Dated: January 28, 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tariff Value of Brass Scrap and Poppy Seeds Reduced</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government has decreased the Tariff Value of Brass Scrap from 3252 US Dollars to 2966 and reduced the Tariff Value of Poppy Seeds from 4238 Dollars to 3920 Dollars. There is no change in the Tariff Values of other items.</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=24&filename=notification/custom/2009/cnt09_019.htm" target="_blank">Notification NO. 19/2009 -CUSTOMS(NT), Dated: January 30, 2009</a></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>Central Excise</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Appeals - CESTAT only legally competent to hear appeal against an order passed by Commissioner and has no jurisdiction to scrutinize the legality or otherwise of a review order – CESTAT's orders recalled and Revenues appeal held maintainable: CESTAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NETIZENS </strong> may recall the hot pursuit of Member, CBEC by the East Zonal Bench of CESTAT for his personal appearance before the Tribunal to depose and explain the inordinate delay in constituting the Committee of Chief Commissioners to review an order passed by the Commissioner which resulted in a delay of 423 days in filing an appeal by Revenue.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While there are numerous instances where Tribunals have recalled their own earlier final orders by allowing ROM applications and even Apex Court in <em>Sunita Devi Singhania Hospital Trust vs. Union of India </em><strong>[</strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=26&filename=legal/sc/2008/2008-TIOL-235-SC-CUS.htm"><strong><font size="1">2008-TIOL-235-SC-CUS</font></strong></a><strong>] </strong> observing that the Tribunal has an inherent power to recall its own order subject to sufficient causes shown in this regard, it is not legally clear as to whether an order passed by one Bench of the Tribunal can be recalled by another Bench.</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="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Indo-German DTAA - definition of supervisory PE - for computing minimum period of six months, various sites or projects cannot be considered particularly when different contracts have no effective interconnection with each other: ITAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>EVERY </strong>tax treaty India has signed with a foreign country has certain distinctive features which do not match with others. Though the concept of Permanent Establishment (PE) is a basic feature of all but the definition of PE is not the same for all treaties. That is how a dispute cropped up in the instant case, involving the Indo-German tax treaty. All it prescribes under Article 5(2 )( i ) is the minimum period of six months for treating a site of the project as PE. But in this case the non-resident company had entered into various contracts with different parties and had carried out supervisory works at them for less than six months period on each of them. However, the Revenue insisted that for considering the PE, it is not the period of supervisory work done at one site, but all sites together should be taken into account.</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="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Appeal – Executive order refusing licence or rejecting renewal of application cannot be equated to adjudication order – Appeal under Sec. 129(A) of Customs Act against such letter not maintainable: CESTAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong> appellant was issued a letter by the Additional Commissioner conveying the Commissioner's decision permitting the appellant to resume their CHA operations for a period of two months. Aggrieved by this the appellant approached the Tribunal for relief. The Departmental Representative at the outset put forth that the appeal itself is not maintainable.</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="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p> <p align="justify"><font color="#FF6600" 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>