TIOL-DDT 1067 · 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 1067</font><br>
06.03.2009<br>
Friday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax @10% from 24.02.2009 – Costly reduction in tax</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many assessees are cursing the government for its magnanimity in reducing the Service Tax from 12% to 10%, especially on the assumption that the reduced rates are applicable for the services rendered from 24.02.2009, as the opinion that receipt of payment and not rendering of service is the relevant date, has no great fan following.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assessees are running helter-skelter for some sane clarification, which neither Consultant nor Service Tax officer is able to provide.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Take this case.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An assessee, who is a corporate giant, has rented out several premises. He collects rent in advance every month. So he had already collected the rent for February 2009 and he was to pay the tax to the Government yesterday. In the meantime he had sent invoices to his tenants, for the rent for the month of March 2009 by charging Service tax of 10%.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now some of the tenants have returned the invoices asking him to adjust the excess Service Tax paid for the period from 24.02.2009 to 28.02.2009, from the Service Tax payable for March 2009. Some tenants have asked for a refund. And some tenants perhaps unaware of the change have not asked anything.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now his problem is – rather his problems are</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Can he adjust the invoice for the next month – will the Department agree if he pays less tax next month?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Should he refund the tax to the tenants and claim refund from the Department? Can he pay back the money by a credit note?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Can he pay back to some tenants who have demanded it and ignore the others? What will happen if the others demand it later?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. What should he do for tenants who have demanded that the invoices for February should be revised? Can he do it?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. His computer does not understand all these complications and his employees have no clue as to how to adjust accounts and prepare the returns.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Should he first refund the excess tax to the tenants and then claim refund from the Department? Or can he pay the tax at the reduced rate to the government and then make refunds to the tenants. Will he be breaking any law? He is scared that whatever he does, he is sure to get a Show Cause Notice.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. Why can't he quietly pay the old 12% rate and forget it? Tenants are not going to keep quiet.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. For the next couple of years, he is planning to hire a couple of assistants to calculate the difference, correspond with the Department and clients and in tallying his accounts.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Who asked the Government for a reduction and if at all for getting some votes, they had to do it, why couldn't they reduce it from 1st of March instead of 24 th February?” he asks in exasperation. He is sure that he will not vote Congress because they reduced the tax and made his life miserable.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is another assessee who is into maintenance contracts and he finds that cleaning toilets and greasing the wheels of elevators are far superior and comfortable jobs than complying with Service Tax Law.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This man has collected his service charges in advance on a monthly, quarterly, half-yearly and annual basis.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now some of his clients are asking him to rewrite the invoices showing Service Tax @ 10% from 24.2.2009.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He has another complication – suppose he has not attended to any repair or maintenance work between 24.2.2009 and 28.2.2009, but has collected charges for the whole month. When was the rendering of service if that is the crucial date for paying tax?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If somebody had paid the higher tax, will the recipient get the CENVAT Credit? Department can always say that the excess payment was not tax and just an amount, notwithstanding some feeble judgements. But the Tribunal is the first stage of justice.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Are we in for a good crop of litigation?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board will eventually issue a clarification, but perhaps after the damage is done.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We request, pray, beg the Board to urgently issue a clarification that for the aberrations after 24.02.2009, there will be no cases. You can't reduce tax and cause misery! It defies logic.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Packaged Drinking water – omitted from Section 4A assessment</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An enlightened netizen sent us this <font color="#663399">‘<strong>packaged mail</strong>'</font>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under the six digit classification in Central Excise Tariff,<font color="#FF6600"> Packaged Drinking Water</font> was classifiable under heading 2201.19 of the CETA'85.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>All goods </strong> falling under Chapter heading <strong>2201.19 </strong> and 2202.19 were notified for assessment under Section 4A (MRP based assessment) and the abatement available was 50% as prescribed in terms of notification 13/2002-CE(N.T), dated 01.03.2002.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">With the advent of the eight digit Tariff w.e.f 28.02.2005, ‘ <font color="#FF6600">Packaged Drinking Wate</font>r' came to be classified under heading <font color="#FF6600">2201 90 90</font> of the CETA'85.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, the MRP notification 13/2002- CE(N.T) remained unchanged and continued to hold fort.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, although there was <strong>no </strong> such heading 2201.19 in the 8-digit classification, yet the MRP notification was applicable to ‘<font color="#FF6600">Packaged drinking wate</font>r' in view of notification 5/2005- CE( N.T), dated 24.02.2005.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The notification 13/2002-CE( N.T) dated 01.03.2002 came to be superseded by Notification 2/2006-CE( N.T), dated 01.03.2006 and the description of goods covered under MRP assessment under Chapter 22 were as under –</font></p>
<div align="justify">
<table width="450" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">S. <br>
No.</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter or heading <br>
or sub heading of <br>
the First Schedule</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Description of goods</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Abatement as <br>
a percentage <br>
of retail sale <br>
price</font></strong></p></td>
</tr>
<tr>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(1)</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2)</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3)</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(4)</font></strong></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">25.</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2201 10 10 , <font color="#FF6600">2201 90 </font><br>
90, 2202 10 90, 2202 <br>
90 90</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mineral waters</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">50%</font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">26.</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2201 10 20 or <br>
2202 10 10</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Aerated waters</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">42.5%</font></p></td>
</tr>
</table>
</div>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Although there is a mention of heading 2201 90 90 under which Packaged Drinking Water falls for classification, the description of the goods mentioned in the notification only refers to “Mineral Waters” and “Aerated Waters”.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 4A (1) requires that the Central government by notification <strong><font color="#FF6600">specify the goods</font> </strong> that are to be subjected to MRP based assessment. The opening clause of the notification 2/2006-CE( N.T) [supra] reads –</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“…the Central Government hereby <strong>specifies the goods mentioned in Column (3) </strong>of the Table below and falling under Chapter or heading or sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1986 (5 of 1986) mentioned in the corresponding entry in column (2) of the said Table, as the goods to which the provisions of the said sub-section (2) shall apply…”</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the fact is that although there are a couple of headings/sub-headings referred to in column no. 2 and which can cover “Packaged Drinking Water”, it is only ‘Mineral Water' that is classifiable under heading 2201 10 10 and 2202 1090 that is subjected to MRP assessment.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The above notification continued till the advent of the new notification 14/2008- CE( N.T) dated 01.03.2008 that superseded notification 2/2006-CE( N.T ).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Here the entries pertaining to Mineral Waters and Aerated Waters appears thus –</font></p>
<div align="justify">
<table width="450" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">S.No.</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter, <br>
heading, subheading <br>
or tariff <br>
item of the First <br>
Schedule</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Description of goods</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Abatement <br>
as a <br>
percentage <br>
of retail sale <br>
price</font></strong></p></td>
</tr>
<tr>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(1)</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2)</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3)</font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(4)</font></strong></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">24.</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2201 or
2202</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mineral waters</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">48</font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">25. </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2201 or
2202</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Aerated waters</font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">40.5</font></p></td>
</tr>
</table>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification 49/2008- CE( N.T ) dated 24.12.2008 superseded notification 14/2008-CE( N.T) and as far as the above two entries are concerned, the only thing that changed were the abatement rates which now became 45 and 40 respectively.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the question that begs for an answer is – <font color="#663399">Whether Packaged Drinking Water is a notified commodity under Section 4A of the CEA'44 and whether the same is to be assessed in terms of the Retail Sale price?</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally for the period from <font color="#663399">28.02.2005 to 28.02.2006</font> is concerned, it is apparent that the ‘Packaged Drinking Water' is to be assessed in terms of the RSP u/s 4A of the CEA'44 in view of the fact that notification 13/2002- CE(N.T) dated 01.03.2002 was in existence till 28.02.2006 and the notification 5/2005-CE(N.T), dated 24.02.2005 saved the day.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Through the <strong>DDT </strong> column, I request that the Board takes cognizance of this apparent and inadvertent drafting error in removing Packaged Drinking Water from MRP assessment.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If at all the Audit and Investigation Wings get a whiff of this controversy and raise all kinds of possible demands, the benign Board may like to restrain them till matters are sorted out.</font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Netizens may also like to offer their views.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>He asked the Customs officer to say, “please” and what he got was pepper spray on his face.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Canadian driving in to the US of A was told by a Customs officer, “turn off the car”. The Canadian said, “please”, wanting the officer to say “please turn off your car”. The officer repeated it thrice and thrice the Canadian said, “please”. The officer got wild and sprayed pepper spray right on his face. He became partially blind in pain – the officers grabbed him by the neck, threw him face down and handcuffed him. He was detained for three hours.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The US Customs spokesman's clarifications were more surprising.</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The incident illustrates the importance of obeying lawful orders from uniformed officers, on the border or anywhere else.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Inspectors routinely order the driver to shut off the car, rather than give the person a chance to zoom off and endanger someone. It's a lawful verbal command.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. The obligation in this situation is on the traveller to obey those commands.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But why couldn't the officer simply say, “please”?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Don't our Customs officers look like angels?</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">–Monday'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="left"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Whether CENVAT Credit can be denied on ground of short receipt of inputs? Matter referred to Larger Bench</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT </strong> is not uncommon that when the inputs are received in the factory, the manufacturers check the quantity of the material received vis-à-vis the quantity shown in the invoices. This is to ensure that that the supplier has loaded correct quantity as shown in the invoice and there is no pilferage during transportation. However, the weight always do not tally exactly with the quantity shown in the invoice due to various reasons like taking weight at different weighbridges etc which are acceptable to the parties as long as they are in tolerable limits. But, what about the CENVAT Credit? Do the manufacturer need to take credit proportionality? This is a fertile area for audit objections and there is no uniformity in the decisions of the Tribunal also. Recently this issue came up before the Tribunal and this time, due to different decisions in favour and against the assessee, the matter was referred to the Larger 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>Provision for a liability is amenable to a deduction if there is an element of certainty that it shall be incurred and it is possible to estimate the liability: once spares are considered as emergency spares required for plant and machinery as found by the Tribunal, the assessee was entitled to seek capitalization of the entire cost of spares: High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is well settled that if a liability arises within the accounting period, the deduction should be allowed though it may be quantified and discharged at a future date. Therefore, the provision for a liability is amenable to a deduction if there is an element of certainty that it shall be incurred and it is possible to estimate the liability with reasonable certainty even though the actual quantification may not be possible as such a liability is not of a contingent nature. Provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible either under Section 28 or section 37 of the Act. (it was made on the basis of actuarial valuation)</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>Shipping line loading cargo without having Let Export Order - Such offence may have grave consequences where narcotics and explosives can be exported outside without Customs knowledge because of sheer negligence of the shipping lines – Tribunal orders pre-deposit of penalty</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><strong>Prima facie</strong> </em>the shipping line has committed an offence of loading the goods without Let Export Order and even if they were misinformed by the CHA, it was their statutory duty to see that the goods are not loaded without customs examination and Let Export Order.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Monday for the judgements</strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend.</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>
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