TIOL-DDT 1113 · 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> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">TIOL-DDT 1113</font><br> 19.05.2009<br> Tuesday</strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Authors of Manuals – not updated</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR</strong> the last couple of weeks, we have been reporting about the manuals for scrutiny of ER1s and ST3s reportedly issued by CBEC and which we got from ADB and not from any sources in India. These manuals are aimed at guiding the field officers and must have been prepared by some great minds far more superior and updated about the Act and the Rules than the poor field staff. But a close reading of Service Tax manual revealed that the authors are no better when it comes to updating themselves about the Rules.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Annexure 2.1 of the Service Tax manual contains format for preliminary scrutiny of the ST 3 returns. It has a list of questions for which if the answer is <strong>no</strong>, necessary action has to be initiated as listed in the Table.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Question No 14 a) reads:</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is the tax payer maintaining separate accounts for receipts and utilization of inputs for manufacture of both dutiable and exempted goods?</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">If the answer is <strong>no</strong>, then ascertain whether the tax payer is reversing CENVAT credit amount equivalent to 8% of the value of the exempted goods/ services in terms of provision of Rule 6(3) of CENVAT Credit Rules, 2004. In case no reversal of CENVAT Credit amount has been made, show-cause notice may be issued to recover the amount with interest.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The manuals have reportedly been published in 2009 and way back in 2008, a new rule 3A has been inserted in CENVAT Credit Rules which the authors are apparently ignorant about. They tell the field to issue Show Cause Notices for recovery of 8% amount if no separate accounts are maintained. But Rule 3A provides for a kind of proportionate reversal based on the formulae mentioned therein. But the manual does not mention the same and directs for issue of SCNs.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, the question reads <font color="#FF6600">“Is the tax payer maintaining separate accounts for receipts and utilization of inputs for manufacture of both dutiable and exempted goods?"</font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">May be they had forgotten that they were drafting the manual for service tax and service providers <font color="#663399">do not manufacture goods</font>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The question should have been <font color="#FF6600">“Is the tax payer maintaining separate accounts for receipts and utilization of inputs for providing both taxable and exempted services?”</font></font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">So much for high profile reports submitted to mighty organisations like ADB</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">.</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Babus </font></strong><font color="#006600"><strong> who delay in filing appeals on time in for trouble – Supreme Court orders recovery of costs and criminal action</strong></font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a hard hitting decision, the Supreme Court condoned delay in filing appeal but ordered cost of Rs. 10 Lakhs to be paid to the respondents and this cost to be recovered from the officers responsible apart from initiating criminal actions against them.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court observed that it is clear that the officials who were dealing with the matter have either deliberately or without understanding the implications dealt with the matter in a very casual and lethargic manner. It is a matter of concern that in very serious matters action is not taken as required under law and the appeals/petitions are filed after long lapse of time. <strong>It is a common grievance that it is so done to protect unscrupulous litigants at the cost of public interest or public exchequer. </strong> Even though the courts are liberal in dealing with the belated presentation of appeals/applications, yet there is a limit upto which such liberal attitude can be extended. Many matters concerning the State Government and the Central Government are delayed either by the nature of bureaucratic process or by deliberate manipulation of the same by taking advantage of loopholes in the conduct of litigation. Several instances have come to the notice of this Court where appeals have been filed where the revenue involved runs to several crores of rupees. It is true that occasionally delay occurs which is inexplicable in normal circumstances.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ultimately, the Court has to protect the public justice. The same cannot be rendered ineffective by skilful management of delay in the process of making challenge to the order which prima facie does not appear to be legally sustainable.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is imperative that the State shall immediately initiate action as available in law against every person responsible for the alleged fraud and delay in pursuing the remedies, fix responsibility and recover the amount paid as costs from them. If any, action under criminal law(s) is to be taken, same shall be taken.</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Delay in appeals by Central Excise Department</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though the above case was a land dispute case of Karnataka, the Supreme Court by way of an example quoted from the CAG's report of 2003 dealing with REVIEW ON HANDLING OF APPEAL CASES IN THE CENTRAL EXCISE DEPARTMENT.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(i) Delay by Panel Counsel</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CEGAT set aside (March 1997) an order issued by CCE in April 1992 confirming demand of Rs.29.13 crore and penalty of Rs.2 crore , against M/s. National Organic Chemicals. India Limited, in Mumbai VI Commissionerate of Central Excise, for invoking Section 11A without adequate evidence of intention to evade duty. This Court on 15 January, 1999 dismissed the appeal filed by the department against the CEGAT order dated 5 March 1997, on account of delay in filing of appeal by <strong>seven months </strong>. The period of delay included four months taken by the Panel Counsel in drafting the appeal.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(ii) Delay by the Board</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the case of M/s. Time Pharma , involving revenue of Rs.1.83 crore , the Commissionerate of Central Excise Mumbai II (now Mumbai III) received certified copy of the CEGAT's order after 14 days on 4 February 1997 and sent comments to the Board after 23 days as against prescribed period of 10 days. Although the Board decided before 17 April 1997 to go in appeal, the appeal was filed only on 5 June 1998. The Supreme Court dismissed the appeal on the ground that there was an inordinate delay of about 360 days in filing the appeal without giving any satisfactory explanation. The Commissionerate of Central Excise attributed the delay to the Board.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(iii) Supplementary appeal filed after six years: </strong>Mumbai II Commissionerate of Central Excise, filed an appeal in CEGAT on 14 June, 1993 against an order of the Commissioner dated 31 March 1992 regarding irregular availment of SSI exemption and consequent availment of Modvat credit at higher rates by a group of six assessees (M/s. Azo Dye Chem and five others). The appeal was, however, filed in respect of only one assessee whereas the case was against all the six manufacturing units and fourteen others being Directors and Managers of the said units. After six years, on the instructions from Junior Departmental Representative, the supplementary appeals along with application for condonation of delay in filing appeals against the others were filed in CEGAT on 11 October 1999 under section 35 E (4) of the Act. However, CEGAT dismissed these appeals on 21 July, 2000 borrowing a Larger Bench decision dated 12 July, 2000 in the same case where it was held that CEGAT has no power to condone the delay. The main appeal filed in time (14 June 1993) was also dismissed by CEGAT on 21 July, 2000 on the ground that no appeal had been filed against the other noticee. The revenue involved in this case was Rs.1.18 crore .</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(iv) Frivolous reasons for condonation</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Hyderabad I Commissionerate of Central Excise, two appeals filed by the department against order of Commissioner (Appeals) on whether certain products manufactured by the assessees (M/ s.Neyland Laboratories Limited and M/s. Aurbindo Pharma Ltd.) are bulk drugs under `Drugs and Cosmetics Act', were dismissed (17 August 2002) by CEGAT as time barred as there was a delay of 48 days in filing the appeals. The reasons put forth by the department that <strong>the new Collector of Central Excise needed time to familiarize to the work were not accepted </strong>. Failure to file an appeal before CEGAT in time resulted in dismissal of the appeal involving revenue of Rs.81.81 lakh. [<font color="#663399">The Commissioner got two promotions after that.</font>]</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2009/2009-TIOL-72-SC-MISC.htm" target="_blank">2009-TIOL-72-SC-MISC</a></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Bulls, Bears and Monkeys salute the New Government</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Any Government which does not depend on the Left Support for its survival will have the support of the Stock Market. The BSE received the election results with a 21 gun salute – rather a 2100 point salute – in just two minutes. When the stock markets were climbing dizzy heights due to strong fundamentals of the Nation, the then Finance Minister remarked, “fundamentals don't change by the hour.”</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see DDT story <strong>Bulls, Bears and Monkeys in <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6282" target="_blank">DDT 731- 31.10.2007</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>Wednesday'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 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></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399">FERA </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Chartered Accountant charged with FERA violation and Rs. 26 Lakhs penalty imposed. His plea that he was not a person resident in India, not accepted because documents not authenticated – Matter remanded – High Court </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant is a Chartered Accountant by profession and is also a partner of M/ s.D.J.Shukla & Company Chartered Accountants at Mumbai. Prior to his departure for U.K., the appellant was active partner of M/s. D.J.Shukla & Company. However, after his departure for U.K., he is a dormant partner. According to him, on 2nd September, 1992, he was appointed by M/s. Synthetic and Chemicals Ltd. as their representative in U.K. and on 25th March, 1993 M/s. Synthetic Chemicals Ltd. placed the appellant's services at the disposal of M/s. Nova Atliantis in England. Accordingly, the appellant shifted to U.K. in September, 1992 and he was granted residence permit in U.K. from 16th November, 1992. His wife and two children also left India in June, 1993 and settled down in U.K. along with the appellant.</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">Sec 43B - is bottling fee charged under State Excise Act equal to tax, duty or cess? - No, such a fee is not covered under Sec 43B as it is merely a payment for grant of approval by State to have exclusive right to deal in bottled liquor: SC</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>dispute relates to bottling fee collected by the State Government under Excise Rules. The issue is whether such a payment is covered under the ambit of Sec 43B of the Income Tax Act? And the verdict is that the crucial expression in Section 43B is ''by way of''. The bottling fee is neither fee nor tax but the consideration for grant of approval by the Government as terms of contract in exercise of its rights to enter a contract in respect of the exclusive right to deal in bottling liquor in all its manifestations.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Service Tax </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Appellant paying Service Tax as a ‘Consulting Engineer' on services received from abroad - later claiming that they are correctly covered under Intellectual Property Service w.e.f 10.09.2004 and claiming refund for past period – appellants are estopped from construing the provisions of the agreement to the contra for a part of the period - Tribunal</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>APPELLANTS</strong> continued to pay Service Tax and remained registered as a Consulting Engineer even after 10.09.2004 - The appellants cannot now plead anything contrary to such understanding inasmuch as the question, whether, under the agreement, the appellant was receiving consulting engineer's service is a mixed question of law and fact. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">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> </body> </html>