TIOL-DDT 1088 · 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 1088</font><br> 13.04.2009<br> Monday</strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Services provided to SEZ developers/units by Small Scale Service providers – Value to be included or excluded</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR</strong> the benefit of small scale service providers, Notification No. 6/2005-ST dated March 1, 2005 as amended was introduced wherein the turnover aggregating ten lakh rupees in a financial year was exempted from levy of service tax subject to conditions. For computation of this aggregate value, Explanation (B) to the Notification provides as follows:</font></p> <div align="justify"> <blockquote><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(B) “aggregate value not exceeding ten lakh rupees” means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to ten lakh rupees but <strong><font color="#FF6600">does not include payments received towards such gross amount which are exempt from whole of service tax leviable </font></strong> thereon under section 66 of the said Finance Act under any other notification.</em></font></blockquote> </div> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per this explanation, the aggregate value of ten lakh rupees does not include payments received towards such gross amount which are exempt from whole of service tax leviable. Earlier vide Notification No. 4/2004-ST dated March 31, 2004 services provided to developers/units of SEZs were exempted from the whole of service tax leviable on such services. This exemption notification was without any conditions. So far so good.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But this notification was superseded by Notification No. 9/2009-ST dated March 3, 2009 which provides for exemption to service tax leviable on services provided to SEZ developers/units whether provided within the SEZ or not. However, this exemption is effective for the SEZ developers/units by way of refund of the service tax paid by the service providers.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">That is, for the taxable services provided to SEZ developers/units, the service providers will have to pay service tax and the exemption to SEZ developers/units will be available in the form of refund of such tax paid by service providers. And there is no exception to small scale service providers. Please also see<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8697" target="_blank"> <strong>DDT-1065-dated March 4, 2009</strong></a> for more confusion and complexities on this issue.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, is this applicable to small scale service providers who provide services to SEZ developers/units? As per the Explanation (B) to the Notification No. 6/2005-ST as amended, the aggregate value of ten lakh rupees does not include payments received towards such gross amount which are exempt from whole of service tax leviable. Can the services provided by small scale service providers to SEZs be regarded as exempted from levy of service tax when Notification 9/2009-ST provides for an exemption mechanism by way of refund to SEZ developers/units?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since, the services provided to SEZ developers/units by even small scale service providers is subject to service tax levy by virtue of Notification 9/2009-ST, this Explanation (B) which provides for exclusion of payments received for exempted services may not be applicable to such small scale service providers. That is the value of taxable services provided by small scale service providers to SEZ developers/units cannot be excluded while computing the aggregate value of ten lakh rupees. Is it appropriate to hold this view or is there an alternate view possible?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After all the exemption is provided for the services rendered to SEZ developers/units by the service providers. However, the mechanism of availing this exemption is provided in the form of refund of service tax paid to the buyers i.e. SEZ developers/units. Just because this exemption is available to the buyers by way of refund, does this take away the character of exemption to the service providers who pay the service tax?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A close look at the Notification No. 9/2009-ST provides food for thought on this view. The preamble of this notification is extracted below for ready reference:</font></p> <div align="justify"> <blockquote><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 4/2004- ServiceTax , dated the 31st March, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 31st March, 2004, vide, G.S.R.248 (E), dated the 31st March, 2004, except as respects things done or omitted to be done before such supersession, the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (105) of section 65 of the said Finance Act, which are provided in relation to the authorised operations in a Special Economic Zone, and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the service tax leviable thereon under section 66 of the said Finance Act.</em></font></blockquote> </div> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Notification exempts the taxable services which are provided in relation to authorized operations in a SEZ and received by developer/unit of the SEZ whether or not the services are provided in the SEZ from the whole of service tax leviable thereon under s. 66 of the Finance Act, 1994. While the notification provides for exemption from levy of service tax on services provided to SEZ developers/units by the service providers, the exemption is made effective by way of a condition that the SEZ developers/units shall claim refund of the service tax paid by the service providers. This means though the exemption is available to the service providers, the burden/right of claiming the exemption is shifted to the buyers by way of refund claims.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Principally, the exemption is still operative for the service providers even if they pay service tax on the services provided to SEZ developers/units because such service tax is available as refund to those SEZ developers/units. Therefore, the character of the exemption available to service providers does not get altered by virtue of shifting the availability of exemption to the buyers i.e. SEZ developers/units. Hence, the value of taxable services provided by small scale service providers to SEZ developer/units may be excluded while computing the aggregate value of taxable services in terms of Explanation (B) to Notification No. 6/2005-ST as amended.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since two alternate views are possible, one against and the other in favour of the small scale service provider as highlighted above, the CBEC may quickly consider issuing a suitable clarification in this regard to safeguard small scale service providers from unnecessary complications and legal hassles.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe this lacuna is a blessing in disguise – suddenly SEZ units have a better incentive in buying their services from Small Service Providers. Earlier it made no difference whether they bought the services from small or big service providers as they were anyway exempted. Now if they buy the services from a big service provider they have to pay the tax first and then claim the refund which involves costs, delay and glorious uncertainties. Now if they buy from the small service providers, they need not pay tax and need not run around excise offices to claim refund.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And can a small service provider within the ten lakhs exemption pay tax for the services provided to SEZ units and continue with the exemption in case of other clients.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us hope CBEC will clarify the position before it enlarges into a giant storm.</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">A month full of Sundays </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mr. Dev Kumar, superintendent of Central Excise sent us this.</font></p> <div align="justify"> <blockquote><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Ugadi has truly heralded a very happy new year for Central government servants. They are enjoying three day weekends with an occasional Tuesday thrown in for a good measure.</font></blockquote> </div> <blockquote> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Having lazed through third fourth and fifth April one had really to drag oneself to work on the sixth. Seventh was Mahavir Jayanti . Again a closed holiday when almost everybody works and Central Government employees enjoy life. Fine. But believe me folks, I was really disappointed when I had to go to work on the 9 th . Except for a small procession on the road, there was no official recognition for Hanuman Jayanti. Temples were overflowing with people though. So it's only a matter of time before this festival gets added to the list of closed holidays. Ambedkar Jayanti falling on 14.04.09 has just been declared a holiday. And there will be holiday on election day also for sure. Holiday list, already long, goes on lengthening. Diwali used to be a working day till early eighties. But somewhere down the line it became a closed holiday. It is an evening festival and no religious sentiment will be hurt if offices remain open on that day.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">A time may come when central Government may declare holiday for Kunwar Singh Jayanti, birthday of Alluri Sitarama Raju and so on. Possibilities are endless.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">If things are allowed to go unchecked, a day may come when Government finds it easier to notify a few working days like sessions of Parliament and the rest will be treated as holidays.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">To remedy this situation, we can draw a leaf from RBI. Whenever banking system is disrupted RBI directs the Commercial Banks to work for extended hours and/or work on weekend to make up for the time lost. Similarly if there are too many holidays in a month, Sundays should be declared as working days for those months. This will help put up a semblance of sanity on an already chaotic system and also ease the pressure on the govt. for declaring newer and newer holidays.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">As India hopes to be an economic superpower in not a too distant a future, it is imperative that we adopt international best practices and cut down wasteful expenditure of time and money wherever possible. Doing away with a surfeit of holidays would be one such step in that direction.</font></p> </blockquote> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Why was the Pay Commission's recommendation not accepted?</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Sixth Pay Commission had in fact shared Mr. Dev Kumar's agony. It had recommended that “henceforth, the Government offices should remain closed only on the 3 National holidays. No other closed holidays should be allowed. To enable the Government employees the freedom to celebrate their festivals and other occasions of special significance to them, the number of Restricted Holidays available to an employee shall be increased to 8 with the list of Restricted Holidays being suitably enlarged to include all the erstwhile Gazetted Holidays therein. The Commission is aware that on few occasions, it may not be possible to open the office due to local considerations like lack of availability of adequate transport facilities on that day or some other practical problem. Every Head of Department (HoD) should, therefore, be allowed the option of declaring the office closed for a maximum of two Restricted Holidays in a year based on local considerations. These days should be decided by the HoD at the beginning of the year in consultation with the Staff Side of the organization and be prominently displayed in the office premises. All employees of the office will be deemed to have availed Restricted Holiday on those two days. This will not only ensure that Government offices remain open for a larger number of days even though a few employees may be absent on certain specific occasions but will also allow sufficient leeway to the individual organizations to keep the office closed on upto 2 specific occasions in a year when it is not practical to run the office. The number of Casual Leave, Half Pay Leave and Earned Leave available to Government employees shall remain unchanged.”</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the government was quick to accept all the fiscal recommendations of the Pay commission, it failed to see wisdom in this recommendation.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is sad to see government offices having a few working days thrown in between holidays! And it is a pleasure to see a government servant unhappy with so many holidays.</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">–Wednesday's cases</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399">Central Excise</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Prior to 31.03.2005 - addition of vitamins in a product would take it out of purview of Chapter 04 – Pediagro proprietary Milk food is correctly classifiable under 1901 as held by Revenue: CESTAT Larger Bench</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>matter before the Larger Bench was the dispute over classification of the product “Pediagro proprietary milk food”, whether under heading 0404 as claimed by the assessee or under heading 1901 as held by Revenue and the period in question is prior to 31.03.2005.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Income Tax</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Integrated Receiver and Decoder for receiving satellite TV signals - Depreciation - 60% vs 25% - Can IRD be classified as computer? - Tribunal not satisfied with assessee's claim nor with evidence produced by Revenue - Matter remanded to AO for deeper examination</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHAT</strong> is computer? How does one define it? What are the necessary characteristics of a computer? What are the functionalities which may be regarded as mandatory for a computer? Incidentally, there is no definition of 'computer' in the Income Tax Act. But the I-T Act has been generous enough to allow 60% depreciation on it. And this sometimes becomes a point of dispute. In the instant case the assessee treats its Integrated Receiver and Decoder (IRD) used for receiving satellite TV as a computer and claims 60% depreciation whereas the Revenue treats it as plant and machinery and allows only 25% depreciation.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Customs</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Reward to informer – Duty recovered is Rs 86 lakhs - reward given only Rs 5 lakhs : A more judicious application of mind was called for on part of Reward Committee: Kerala HC</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TO</strong> encourage the public to pass on information regarding evasion of duties, the Government of India announced a scheme for reward. As per the same, informants from public as well as the officers of the department are entitled to reward up to 20% of the amounts of duty involved plus amount of fine and penalty levied, imposed and recovered. Guidelines are prescribed for fixing the reward amount. Since the information supplied by the petitioner unearthed evasion of duty by the company, pending adjudication proceedings an advance reward of Rs.5 lakhs was paid to the petitioner. In this regard it may also be noted that total amounts of duty recovered from the company was Rs.85 lakhs. Rs. 1 lakhs penalty was also recovered. However the petitioner was informed by the department that the Reward Committee had after going through the records of case, observed that the previous Reward Committee had taken a decision that the reward amount of Rs. 5 lakhs already sanctioned to the petitioner could be treated as the final reward.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tomorrow is a holiday</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">See our columns Wednesday for the judgements</font></strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Wednesday 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>