TIOL-DDT 1104 · the untouched capture
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<p align="justify"><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif"><strong>TIOL-DDT 1104</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><br>
06.05.2009<br>
Wednesday</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Government to lose thousands of Crores by introducing a new levy – Lottery Agency wins a lottery from Government</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE </strong>told you so. On 29th February 2008, when the Government proposed to amend the Finance Act (now don't tell me government did not do it – Parliament did – what we so richly attribute to the mighty Parliament is actually the handiwork of some babu's half baked creative genius), we reported- <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6918">Selling of Lottery Tickets brought under Service Tax net – what happens to DGCEI's mega case? Government to lose more than a thousand Crores by introducing a new levy.</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">More than a year before that in February 2007, we had warned the government, <strong>Any apathetic attempt to clarify it in the Budget may lead to pathetic erosion of revenue for the past period. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In February 2008, we pointed out, “When no such thing was done in the 2007 Budget, we assumed that wiser counsel prevailed with the Board, but now we understand that wisdom cannot be sustained. The Government has done exactly what we cautioned them against and thereby the Government will most likely lose about Rs.2112 Crores.“</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And that is exactly what happened. The Government's clarification has ensured that it has lost Crores and maybe forever. Without the explanation, there was a chance, with it what little chance was there, was totally wiped off. Often clarifications are costly.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Well, it all started with the DGCEI initiating cases against lottery agencies for evading service tax. They were charged with providing service under Business Auxiliary Service. Commissionerates also picked up the intelligence. Now what in <em>Business Auxiliary Service </em> was the Department trying to tax?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The definition of BAS reads as</font></p>
<blockquote>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">(19) “business auxiliary service” means any service in relation to, —</font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) promotion or marketing or sale <strong>of goods </strong> produced or provided by or belonging to the client; or</font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) promotion or marketing <strong>of service </strong> provided by the client; or</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So 19(i) deals with promotion/ marketing of <strong>goods </strong> while 19(ii) deals with <strong>services.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now does selling of lottery tickets involve marketing of <strong>goods </strong> or <strong>services</strong>?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Apparently everyone in Government thought it fell in the first category that is promotion/marketing of <strong>goods</strong>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Sikkim High Court held that lottery ticket was not goods and therefore no tax can be levied on their sale. This judgement was delivered on 18.09.2007.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the Revenue promptly appealed to the Supreme Court, it waited for the opportunity of the 2008 budget to change the law.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The following explanation was added to the definition:</font></p>
<blockquote>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Explanation.— <strong>For the removal of doubts</strong>, it is hereby declared that for the purposes of this sub-clause, "service in relation to promotion or marketing of service provided by the client" includes any service provided in relation to promotion or marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including <strong>lottery</strong>, lotto, bingo;</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So now Lottery had been specifically included in the second sub-clause under services. If lottery is not goods, it can be taxed as service.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a classic judgement delivered yesterday, the Supreme Court emphatically held. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Lottery Tickets are not goods and so not taxable under the first limb of the definition – marketing of goods.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The explanation inserted by Finance Act has no retrospective application.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Just by writing, “for the removal of doubts” will not make the explanation a clarificatory one.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. When two views are not possible, a clarification is not required.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Running lottery by the State may be tolerated; morality aspect may not be relevant, there is no service involved.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Parliament is competent to create a legal fiction, the fiction cannot be retrospective.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the Revenue Appeal was dismissed. And the Supreme Court held that the Service Tax, <strong>if any </strong> was payable only from May 2008. <strong>IF ANY </strong> – The question whether the levy was constitutionally void was not considered by the Supreme Court as it was not a question before it. Had the explanation not been inserted, while the matter was pending before the Supreme Court, the arguments before and the decision of the Supreme Court would have been different.</font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">In its anxiety to promote the cause of tax collection with utter disregard to judicial pronouncements by hasty amendments to the statute, the Government of India is not only ruining the cause of tax collection but the very basis of supremacy of law.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today we bring you this landmark judgement. See <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8989" target="_blank">Breaking News</a></strong>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Also see</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5014">Service Tax and Budget - Will it turn out to be a lottery for Lottery Industry</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6605">Bangalore DGCEI detects service tax evasion of Rs 2263 Cr; recovers Rs 55 Cr last calendar year</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6768">Dear FM, please tax 'law' and 'lottery'</a></strong></font></p>
</blockquote>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">FTP – EOP – extension applicable for DFIA – DGFT clarifies</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT had extended the original Export Obligation Period (EOP) under the Advance Authorisation Scheme to 36 months from the earlier original EOP of 24 months.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was clarified vide Policy Circular No. 80 dated 13.4.09 that the said facility had been extended for all Advance Authorisations which are within 36 months from the date of issuance of the authorisation, as on 26-2-2009 or thereafter.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now DGFT clarifies that the facility of EOP upto 36 months is equally applicable under DFIA.</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=46&filename=notification/dgft/2008/dgft08cir086.htm" target="_blank">DGFT Policy Circular NO. 86 (RE-2008)/2004-2009 Dated: May 4, 2009</a></strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Export of Sugar - Restrictions</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Due to the substantial decline in sugar production during current sugar season, Government directs that a producer of sugar by vacuum pan process or a merchant Importer/exporter shall be required to obtain an export release order from the Chief Director (Sugar), Directorate of Sugar or any other Officer authorized by the Chief Director (Sugar) for export of sugar whether under Open General Licence or Advance Authorization Scheme on ‘ton- to-ton' basis or any other scheme permitting Export of sugar.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT wants the field formations to take action for compliance.</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=46&filename=notification/dgft/2008/dgft08cir087.htm" target="_blank">DGFT Policy Circular NO. 87 (RE-2008)/2004-2009 Dated: May 4, 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">–</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 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></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">Demand of CENVAT credit not sustainable when notification specifically provides for exemption subject to non-availment of CENVAT credit on inputs – Revenue ought to demand duty on finished goods and deny exemption benefit for violation of condition: CESTAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ONCE</strong> the goods are exported under bond even if they were not entitled to cenvat credit, the duty paid on the inputs could have been claimed as a refund, therefore, whole exercise is Revenue neutral and availment of cenvat credit can at best be held as procedural irregularity.</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">Once the mandate of section 271(1)(c) are satisfied, there is no further onus on the Assessing Officer to establish <em>mens rea</em>. The views expressed in <em>Dharmedra Textile Processors' </em> case cannot be viewed as an authority for the proposition that a penalty under section 271(1)(c) is an automatic consequence of an addition being made to income - ITAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is thus clear that, in the considered view of Hon'ble Supreme Court, it is no longer necessary that Revenue is required to prove <em>mens rea </em> and, therefore, independent finding about conscious concealment is no longer a condition precedent for imposition of penalty under section 271(1)(c) read with Explanation 1 thereto. The school of thought casting onus on Revenue to prove <em>mens rea</em>, as advocated by large number of judicial precedents relied upon by the assessee, has been thus specifically rejected by the Hon'ble Supreme Court.</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">Addition of an amount of 2% of assessable value as cost of 'design and drawing charges' is totally subjective and imaginary and has no legal basis – Revenue appeal rejected - Tribunal</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is
also seen that the price is agreed and contracted between the assessee and
their customers. The assessees have not recovered anything over and above
the price contracted. There is no allegation regarding flow back of any additional
consideration from the customers to the assessee.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099">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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