TIOL-DDT 1076 · 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 1076</font><br> 23.03.2009<br> Monday </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Services rendered to the associate enterprises – Amendment for removal of doubts or creation of doubts</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per Rule 6 (1) of the Service Tax Rules, 1994, the service tax shall be paid by 5th /6th day of the month immediately following the calendar month in which the payments are received towards the taxable services. Every service provider was paying service tax on the amounts received and there was no doubt regarding the provisions in the rules. This rule has been amended vide Notification 19/2008-Service Tax, Dated: May 10, 2008 by inserting the following explanation:</font></p> <blockquote> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">“<em>Explanation </em>- For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called ‘Suspense account' or by any other name, in the books of account of a person liable to pay service tax.”</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The purpose of this amendment was explained vide TRU Circular dated 29-2-2008 as:</font></p> <blockquote> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">6.1 Service tax is levied at the rate of 12% of the value of taxable services (section 66). Section 67 pertaining to valuation of taxable service for charging service tax states that value shall be the gross amount charged for the service provided or to be provided and includes book adjustment. As per rule 6 of the Service Tax Rules, 1994, service tax is required to be paid only after receipt of the payment.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">6.2 It has been brought to the notice that the provision requiring payment of service tax after receipt of payment are used for tax avoidance especially when the transaction is between associated enterprises. There have been instances wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognized as revenue/expenditure in the statement of profit and loss account for the purpose of determining corporate tax liability.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">6.3 As an anti-avoidance measure, it is proposed to clarify that service tax is leviable on taxable services provided by the person liable to pay service tax even if the amount is not actually received, but the amount is credited or debited in the books of account of the service provider. In other words, service tax is required to be paid after receipt of payment or crediting/debiting of the amount in the books of accounts, whichever is earlier. However, this provision is restricted to transaction between associated enterprises. This provision shall also apply to service tax payable under reverse charge method (Section 66A) as taxable services received from associated enterprises. For this purpose section 67 and rule 6(1) are being amended. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the amendment was not to remove any doubts, which never existed, but only to recover service tax in respect of transactions between the associated enterprises without waiting for the receipt of money. But while doing so, they seem to have created few fresh doubts instead of removing the unexpected doubts.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the associated enterprises will pay service tax on the bills/debit notes raised/or on making debit/credit entries, with effect from 10.5.2008, the field formations are insisting payment of service tax on the outstanding balance on 10.5.2008 by holding that the same is payable on 10.5.2008 itself. Their view is that no service tax should be pending as on 10.5.2008 on the ground of “non-realisation” of amount billed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If this view is accepted, it implies that the amendment has retrospective effect and if it is so, then since 1994, the service tax becomes payable on the date of raising the bill/debit notes and the service providers will have to pay the interest from the date of billing to the date of realization since 1994.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why do they endeavour to create doubts instead of removing them? Who will rein in the officers demanding instantaneous payment of tax on huge amounts outstanding as on 10.5.2008? Will someone take the issue a bit seriously and remove the doubts in the amendment made to remove the doubts?</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Procedure for Reimbursement of Duty (RoD) in lieu of drawback for supply of goods to SEZ Developers against Indian Rupees</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Empowered Group of Ministers (EGoM) on SEZ in its meeting held on 7th August 2008 agreed to the request received from the various quarters for “Reimbursement of Duty” (‘RoD') for supply of goods to SEZ Developers against Indian Rupees. Accordingly Rule 30(8) of SEZ Rules has been amended vide GSR 72(E) dated 3rd February 2009.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of the said Rules, the following procedure shall be followed for ‘RoD' in lieu of drawback against supply of goods to SEZ Developers:-</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) The Developer shall file a duty reimbursement claim in prescribed format (designated as Form‘1') with the Development Commissioner within a period of twelve months from date of payment on a monthly or quarterly basis at the option of claimant.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) On applications received within six months after the expiry of last date, 2% cut shall be imposed. In case application is received after this period but within another six months, 5% cut shall be imposed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) The developer shall enclose the following documents in original along with the self attested copies:</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) Assessed triplicate copy of bill of export;</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) Original invoice of the supplier issued under Rule 11 of Central Excise Rules 2002;</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) Original ARE-1, if applicable;</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) Proof of payment in (Form ‘2')</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e) Disclaimer Certificate from DTA supplier on letter head that no CENVAT on raw material has been availed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The ‘RoD' shall be given on the basis of “All Industry Rate of drawback”. In cases where “All Industry Rate of drawback” is not available for the product on which reimbursement is sought, the developer can claim the reimbursement on the basis of actual duty paid subject to submission of original duty paid documents.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On receipt of application complete in all respects, the Development Commissioner shall process the reimbursement claim and if satisfied that the claim is in order, shall sanction the claim within 30 days of such claim being filed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After processing of reimbursement claim, original documents evidencing payment shall be defaced with the remark ‘Duty Paid/Rejected'. Five percent of Bank Certificates and Duty paying documents shall be sent for verification to the respective Banks/Commissionerates post sanction. The claims shall be selected at random personally by the Development Commissioner every 6 months.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The ‘RoD' can also be claimed by DTA supplier based on the disclaimer certificate issued by SEZ developer.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Reimbursement of Duty shall be admissible w.e.f. 10.2.06. In respect of goods received in the SEZ prior to this Notification, duty claim shall be filed within 6 months from the date of this Notification.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>If the RoD is admissible from 10.02.06 as provided above, then going by the time period for claiming reimbursement as provided for at sub clauses (i) and (ii) above, it would be interesting to see how claims for goods received in an SEZ after 10.02.06 but payments made therefor prior to February 2007 could be processed. Because in such cases it could be beyond the two six monthly extension that is possible as per sub clause (ii) above.</strong></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=260&filename=sez/sez_instructions/2006/sez06ins009.htm" target="_blank">Ministry Instruction No. 9/2009, Dated: February 18, 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SION norms amended and new additions made</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT has made the following amendments/additions/deletions/corrections in the Handbook of Procedures, Vol.2, 2004-2009, as amended</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The SION entry at A2361 pertaining to export product ‘Reinforced Steel Wire Braided Rubber Hose containing Minimum 35% Relevant Synthetic Rubber in Rubber Compound' is amended as follows:</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Description of Import Item at Sl. No. (2) against SION entry at A2361 is amended as “Relevant textile yarn (Cotton, Polyester, Rayon, Nylon Yarn, of relevant denier)” for existing description ‘Relevant Textile Yarn (Cotton, Polyester, Rayon)'.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the statement of Standard Input Output Norms, following additions shall be made at appropriate places as mentioned below:-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, after the existing SION entry at Sl. No. A3635, new entries at Sl. Nos. A3636 and A3637 are added for “Reinforced steel wire Braided Rubber Hose fitted with Non-Alloy Steel Flanges/Couplings” and “Timing Belts”.</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/dgft08pn161.htm" target="_blank">DGFT Public Notice. 161 (RE: 2008)/2004-2009, Dated: March 19, 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Multi Crorepatis of the World – on taxes and greed</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Forbes Magazine which makes money out of listing the richest people of the world asked some of them questions on greed, taxation and economy. And these are the comments of some of the richest persons of the world.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Greed: </strong>"Wall Street people used greed as a credo until it devoured itself; Damned near ruined America , maybe the world."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Greed and fear have gotten us into the current economic predicament, Greed on any level is bad. But, in turn, we have to distinguish greed from reaping the just rewards of the free enterprise system."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Ambition is good. But greed, as we've seen, can lead to excessiveness that can spiral out of control."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Taxes. </strong> Nearly all of them believe everyone should be paying less</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Reducing taxes is important, particularly given current economic circumstances, the right kind of tax cuts will encourage investment, spur production, prevent the shuttering of factories and preserve, and eventually increase, employment."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Income tax should be abolished altogether; It is a perverse society that would punish that which it wishes to encourage."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Go with a flat tax of 15%. The economy will soar."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When asked what currency they would like to hold the majority of their portfolio in, more than two-thirds of the plutocrats said U.S. dollars, believing the greenback remains a safe haven in uncertain times despite the Federal Reserve's desire to print hoards of money.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Of those who didn't want U.S. dollars, most preferred a mix of major currencies such as the euro, Canadian dollar and Swiss franc.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many billionaires don't drink and prefer diet soda to a nice expensive bottle of vino. Catsimatides' favorite bottle of wine: "One I'm not paying for."</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>Customs</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Refund arising out of finalisation of provisional assessments in Customs - Larger Bench holds bar of unjust enrichment is not applicable for period prior to amendment of Sec 18 of Customs Act</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> reason for such reference to the Larger Bench was that the Tribunal had found that in the case of <em>CC, Ahmedabad </em>v. <em> Reliance Industries Ltd.<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=28&filename=legal/cestat/2006/2006-TIOL-1415-CESTAT-MUM.htm" target="_blank"> <font size="1">2006-TIOL-1415-CESTAT-MUM</font></a> </em>it was held that irrespective of the amendment of the provisions of Section 18, refund of customs duty would be subjected to principles of unjust enrichment. For arriving at the above conclusion, the Bench has taken note of the Supreme Court's decision in the case of <em>M/s. Sahakari Khand Udyog Mandal Ltd. </em>v. <em> Commissioner <font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2005/2005-TIOL-48-SC-CX-LB.htm" target="_blank">2005-TIOL-48-SC-CX-LB</a></font>. </em>Since the decisions of the Tribunal relied on by the importer in their favour have been rendered after the Reliance Industries Case, without considering the same, 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>Central Excise</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Amount paid under Rule 6 of CCR, 2004 recovered from customer – no cause for action under Section 11D of CEA - Tribunal grants stay</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ALTHOUGH</strong> the assessee was generous enough to pay the 8% on the “additional consideration”, the Pune-III Central Excise officials felt that this was not enough. They wanted to recover the aforesaid amount of additional consideration of Rs.23,01,641, so collected by the appellant, under Section 11D of the Central Excise Act and also impose penalty for this misfeasance. The demand was confirmed and also upheld by the Commissioner of Central Excise (Appeals), Pune-III in September 2008 showing scant regard to the Larger Bench decision and the Board's Circular that were in existence during the material time.</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>Transfer Pricing - transactions with AEs - determination of ALP - TNM Method cannot be used for comparing operational margin at entity-level; Revenue is wrong in treating CUP Method as most preferred method in all cases - Tribunal rejects both methods for infirmities and remands the same to AO</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TRANSFER</strong> Pricing disputes are essentially fought on large ocean of facts and details. This is one chapter of income tax where the facts overpoweringly overshadow the law points. These characteristics of TP cases come out more emphatically in the latest decision of the ITAT where the Tribunal has held that the methods deployed by both the assessee choosing TNMM for working out profits with its associated enterprises (AEs) and the Revenue insisting on the CUP method as the first and foremost method to be preferred over others were apparently in error.</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>