TIOL-DDT 1103 · 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 1103</font><br>
05.05.2009<br>
Tuesday</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Rule 6 in a fix – Board has already fixed</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8935" target="_blank">DDT-1096</a></strong>, it was pointed out that in respect of the 17 services mentioned under Rule 6(5), though full credit is allowed, a specific inclusion of sub-rule 3A in the <em>non- obstante </em> clause of Rule 6(5) will make things clearer. Before raising this issue, we had our own doubts and held it for a couple of days, but decided to raise it and start a discussion. As expected, many Netizens responded that full credit allowed under Rule 6(5) is not disturbed by non-mentioning of sub-rule 3A in Rule 6(5). An alert netizen has also drawn attention to the CBEC circular No 868/6/2008- CX., Dated: May 9, 2008 wherein it was clarified that the credit attributable to services mentioned in sub-rule (5), shall not be taken into account for determination of amount under rule 6(3A). While we thank the Netizens for sharing their views and since a beneficial clarification has already been issued, there is nothing more to add on this issue.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Netizen sent in this,</font></p>
<blockquote>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">“On the Rule 6 issue, agreed that there is a Board Circular clarifying that credits as per Rule 6 (5) is not includible for computation under Rule 6 (3A). Based on this Circular the field formations will keep quiet. But that tranquillity will last only till the CERA raises an objection on this clarification itself.</font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Circulars are supposed to clarify doubts, not for bridging the gaps/loopholes in the Rules. It is safer if Rule 6 (5) is amended for good. Therefore, a word of caution must be sounded to the assessees that a favourable Circular from Board is only favourable till the CERA steps in.”</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly, sometimes the rules do not legally convey what we generally understand them to mean logically, and today we are carrying an important order relating to rules and sub-rules in Export of Services Rules, 2005. These rules contained a Rule 3 with sub-rule (1) and (2). The condition of realisation of foreign exchange was mentioned in sub-rule (2) and the CESTAT held that this condition is not applicable to sub-rule (1) as there was no mention of sub-rule (1) in sub-rule (2).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See <strong>ST se GST Tak</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">ER-1 returns not filed on time – SCN issued after 4 years for penalty</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>We received this mail from a Mumbai assessee </em> -</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I am a vintage assessee and have seen the resplendent Central Excise Rules of the year 1944 and its poor offspring, the CER, 2001 and the one in vogue CER, 2002. I try to follow the law as far as possible (AFAP) and to the best of my understanding so that I am never the victim of any Show Cause notice. After all these years, I was surprised when I received a show cause notice from the Central Excise authorities. The said notice seeks to impose penalty on me under rule 27 of the CER, 2002 and the offence is that the ER-1 return for the <em>winter </em>month of February 2004 supposed to be filed by 10th March was filed a tad late by me.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Actually, this notice shook me for the simple reason that here I was in the throes of a hot <em>summer </em> of year 2009 and the department out of nowhere recollects some ‘technical offence' committed by me nearly five years ago.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I regained my composure and tried to find a reason as to how this could happen. <em>Was it that Audit conducted some time back when the officers were rummaging through my old records that this ‘offence' came to their notice? Or is it that the range officers were examining files for carrying out weeding operations that they stumbled upon this ‘precious' ER-1 return of mine? </em>This was a blot on my reputation, I said, and which should be taken very seriously.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The show cause notice issued almost five years after the alleged ‘offence' was committed simply invoked rule 27 of the CER, 2002 and obviously so because no Central Excise duty was to be recovered. Okay, for technical offences, there is no time limit is what you may say.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 27 of the CER, 2002 reads –</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 27,<em>General penalty.- A breach of these rules shall, where no other penalty is provided herein or in the Act, be punishable with a penalty which may extend to five thousand rupees and with confiscation of the goods in respect of which the offence is committed.</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The fact of the matter is that the goods which were covered in the ER-1 return have probably reached the end of their journey on the earth and are not available for confiscation. So, there is also no question of redemption fine in view of the recent Larger Bench decision in <em>Shiv Kripa Ispat Ltd. </em> <strong>[</strong><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=28&filename=legal/cestat/2009/2009-TIOL-388-CESTAT-MUM-LB.htm" target="_blank"><strong>2009-TIOL-388-CESTAT-MUM-LB</strong></a></font><strong>]. </strong> As for penalty, I would better brace myself for the occasion rather than spending a fortune and hiring some Consultant.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Through <strong>DDT</strong>, I would like to appreciate the diligent efforts of the departmental officers who rummaged through my old records and gave me the opportunity to interact with an adjudicating officer</em>.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Dear Netizen, be sure that the Adjudicating Authority will confirm the demand and if a Commissioner (Appeals) has the generosity to quash that order, the Department will go in appeal. Your rendezvous with litigation is going to be long – have a nice time.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The Great cartoonist R K Laxman had a brush with the Bombay Customs when they detained a book imported by him. About a year after the incident, he got a letter from the Assistant Collector that he had taken a lenient view and decided to let off Laxman.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Laxman wrote in <strong>Idle Hours </strong> that he was surprised that he did not even know that he was under Customs investigation. He wondered whether Customs sleuths were peeping into his bed room to investigate his reading habits. His point was that even without your knowing it, you could be an accused or an offender until let off by a benign Assistant Collector.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Obama's Tax Reforms - Pfizer, Oracle, Microsoft, etc, to be affected – INDIAN angle?</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Levelling the Playing Field: Curbing Tax Havens and Removing Tax Incentives For Shifting Jobs Overseas</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A White House Press Release says, “There is no higher economic priority for President Obama than creating new, well-paying jobs in the United States. Yet today, our tax code actually provides a competitive advantage to companies that invest and create jobs overseas compared to those that invest and create those same jobs in the U.S. In addition, our tax system is rife with opportunities to evade and avoid taxes through offshore tax havens”</font></p>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">In 2004, the most recent year for which data is available, U.S. multinational corporations paid about USD 16 billion of U.S. tax on approximately USD 700 billion of foreign active earnings – an effective U.S. tax rate of about 2.3%.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">A January 2009 report found that of the 100 largest U.S. corporations, 83 have subsidiaries in tax havens.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><strong>In the Cayman Islands, one address alone houses 18,857 corporations </strong>, very few of which have a physical presence in the islands.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> Nearly one-third of all foreign profits reported by U.S. corporations in 2003 came from just three small, low-tax countries: Bermuda, the Netherlands, and Ireland.</font></li>
</ul>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em><font color="#FF6600">Replacing Tax Advantages for Creating Jobs Overseas With Incentives to Create Them at Home: </font></em></strong> The US Administration would raise USD 103.1 billion by removing tax advantages for investing overseas, and would use a portion of those resources to make permanent a tax credit for investment in research and innovation within the United States.</font></p>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><strong><em>Reforming Deferral Rules to Curb A Tax Advantage for Investing and Reinvesting Overseas: </em></strong>Currently, businesses that invest overseas can take immediate deductions on their U.S. tax returns for expenses supporting their overseas investments but nevertheless "defer" paying U.S. taxes on the profits they make from those investments. As a result, U.S. taxpayer dollars are used to provide a significant tax advantage to companies who invest overseas relative to those who invest and create jobs at home. The Obama Administration would reform the rules surrounding deferral so that – with the exception of research and experimentation expenses – companies cannot receive deductions on their U.S. tax returns supporting their offshore investments until they pay taxes on their offshore profits. This provision would take effect in 2011, raising USD 60.1 billion from 2011 to 2019.</font></div>
</li>
</ul>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><strong><em>Closing Foreign Tax Credit Loopholes </em>: </strong> Current law allows U.S. businesses that pay foreign taxes on overseas profits to claim a credit against their U.S. taxes for the foreign taxes paid. Some U.S. businesses use loopholes to artificially inflate or accelerate these credits. The Administration would close these loopholes, raising USD 43.0 billion from 2011 to 2019.</font></div>
</li>
</ul>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><strong><em>Using Savings from Ending Unfair Overseas Tax Breaks to Permanently Extend the Research and Experimentation Tax Credit for Investment in the United States: </em></strong> The Research and Experimentation Tax Credit – which provides an incentive for businesses to invest in innovation in the United States – is currently set to expire at the end of 2009. To provide businesses with the certainty they need to make long-term investments in research and innovation, the Administration proposes making the R&E tax credit permanent, providing a tax cut of USD 74.5 billion over 10 years to businesses that invest in the United States.</font></div>
</li>
</ul>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em><font color="#FF6600">Getting Tough on Overseas Tax Havens:</font> </em></strong> The Administration's proposal would raise a total of USD 95.2 billion over the next 10 years through efforts to get tough on overseas tax havens by:</font></p>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><strong><em>Eliminating Loopholes for "Disappearing" Offshore Subsidiaries: </em></strong>Traditionally, U.S. companies have been required to report certain income shifted from one foreign subsidiary to another as passive income subject to U.S. tax. But over the past decade, so-called "check-the-box" rules have allowed companies to make their foreign subsidiaries "disappear" for tax purposes – permitting them to legally shift income to tax havens and make the taxes they owe the United States disappear as well. The Obama administration proposes to reform these rules to require certain foreign subsidiaries to be considered as separate corporations for U.S. tax purposes. This provision would take effect in 2011, raising USD 86.5 billion from 2011 to 2019.</font></div>
</li>
</ul>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><em><strong>Cracking Down on the Abuse of Tax Havens by Individuals: </strong></em> Currently, wealthy Americans can evade paying taxes by hiding their money in offshore accounts with little fear that either the financial institution or the country that houses their money will report them to the IRS. In addition to initiatives taken within the G-20 to impose sanctions on countries judged by their peers not to be adequately implementing information exchange standards, the Obama Administration proposes a comprehensive package of disclosure and enforcement measures to make it more difficult for financial institutions and wealthy individuals to evade taxes. The Administration conservatively estimates this package would raise $8.7 billion over 10 years by:</font>
<blockquote><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <strong><em>Withholding Taxes From Accounts At Institutions That Don't Share Information With The United States: </em></strong>This proposal requires foreign financial institutions that have dealings with the United States to sign an agreement with the IRS to become a "Qualified Intermediary" and share as much information about their U.S. customers as U.S. financial institutions do, or else face the presumption that they may be facilitating tax evasion and have taxes withheld on payments to their customers. In addition, it would shut down loopholes that allow QIs to claim they are complying with the law even as they help wealthy U.S. citizens avoid paying their fair share of taxes.</font></blockquote>
</div>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <strong><em>Shifting the Burden of Proof and Increasing Penalties for Well-Off Individuals Who Seek to Abuse Tax Havens: </em></strong> In addition, the Obama Administration proposes tightening the reporting standards for overseas investments, increasing penalties and imposing negative presumptions on individuals who fail to report foreign accounts, and extending the statute of limitations for enforcement.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <strong><em>Devoting New Resources for IRS Enforcement to Help Close the International Tax Gap </em></strong><em>: </em>As part of the Obama Administration's budget, the IRS will hire nearly 800 new employees devoted to international enforcement, increasing its ability to crack down on offshore tax avoidance.</font></p>
</blockquote>
</li>
</ul>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They seem to be having all of our problems.</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">–</font></strong></font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> Tomorrow's cases</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 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></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399">General</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">What is contained in reference works/technical Journals, or well known in trade/industrial circles, need not be established by independent `evidence': Oil cake is not a waste to be thrown away, but a valuable product with a distinct name, character, use and marketability. There can be no doubt that the oil cake was a finished goods eligible for transport subsidy – Supreme Court</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHEN</strong> considering whether the `finished goods' is a marketable product, distinct and different from the raw material from which it is produced, the fact that the finished goods is the main product, or is a parallel main product or is a by- product of the manufacturing process, may not make any difference. The question to be considered is whether oil cake can be said to be a `finished goods' produced by an industrial unit in accordance with its manufacturing programme approved by the state government. [this is a judgement of the Supreme Court delivered yesterday]</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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">Transfer of CENVAT Credit – Rule 10 of CCR, 2004 – Transferring manufacturing activities to new premises with new plant and machinery – Arguable matter - Tribunal orders pre-deposit of the CENVAT Credit involved</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ACCORDING </strong> to the department, the appellants have not fulfilled the condition stipulated under sub-rule 3 of Rule 10 of the CENVAT Credit Rules, 2004 and there has been no shifting of the factory as such but it is totally a new factory with completely new plant & machineries and hence they are not entitled to claim the transfer of the CENVAT Credit in terms of Rule 10(1) read with sub-rule 3 of the said Rule.</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">Income tax - Concealment cannot be alleged before Accounting year ends: ITAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is akin to a case where there is prohibition to move certain category of goods out of the State. A Truck operator is carrying such prohibited goods with the intention to cross the border of the State. But before he crosses the border, there is a change of heart and he returns before crossing the border. The question is, has the truck operator committed any offence, the answer is obvious no. Similarly, in the present case also, the goods may be lying unaccounted on the date of survey but that does not necessarily mean that the assessee would not have accounted for them before the year ended.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663366">See our columns Tomorrow for the judgements</font></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>
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