TIOL-DDT 1116 · 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 face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099" size="2">TIOL-DDT 1116 </font></strong><font size="2"><strong><br> 22.05.2009 <br> Friday </strong></font></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Taxable services consumed within SEZs – Fully exempt without recourse to refund </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NOTIFIACTION</strong> No.9 /2009-Service Tax, dated 3.3.2009 was issued to provide refund of service tax paid on taxable services specified in section 65(105) of the Finance Act, 1994 which are provided in relation to the authorised operations (as defined under SEZ Act, 2005) in a Special Economic Zone ( SEZ ), and received by a developer or unit of a SEZ , whether or not the said taxable services are provided inside the SEZ . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is common knowledge that getting your money by way of refund from the department is ridden with artificial roadblocks and mired in bureaucratic red tape. At the end of it all, money that is actually due to the assessee will trickle in only after sustained legal battles. In this backdrop, following the refund route for claiming exemption from service tax for taxable services consumed by SEZ developers and units in SEZs was one more attempt by the department to tighten the noose around SEZs in the name of revenue leakage. We questioned the wisdom of this proposed exemption through refund mechanism in our <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8697" target="_blank">DDT 1065 dated March 4, 2009</a> </strong> as it is contrary to the<font color="#FF6600"> <strong>various provisions of SEZ Act and the Rules </strong>.</font> </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To minimize the misery of SEZ developers and units, CBEC has now issued Notification No. 15/2009-Service Tax, dated 20.05.2009 to amend the Notification 9/2009-ST dated March 3, 2009 <strong><font color="#FF6600">to provide unconditional exemption to services consumed within the SEZ without following the refund route thus dispensing with the requirement of first paying the tax by the service provider and then claiming the refund by developer/unit</font> </strong>. Now, the exemption through refund route would be limited to situations only when taxable services provided to SEZ are consumed partially or wholly outside SEZ . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 15/2009-ST amends sub clauses (c), (d) of Paragraph 1 by substituting them with new sub clauses, inserts a new sub clause (g), and amends Paragraph 2 as detailed below: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The old sub clause (c) reads as follows: </font></p> <blockquote> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone; </font></strong></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The substituted version reads as follows: </font></p> <blockquote> <p align="justify"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone except for services consumed wholly within the Special Economic Zone; </font></strong></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The old sub clause (d) read as follows: </font></p> <blockquote> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) the developer or units of Special Economic Zone claiming the exemption has actually paid the service tax on the specified services; </font></strong></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The substituted sub clause reads as follows: </font></p> <blockquote> <p align="justify"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) the developer or units of Special Economic Zone claiming the exemption, by way of refund in accordance with clause (c), has actually paid the service tax on the specified services; </font></strong></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After sub clause (f) the following sub clause is inserted </font></p> <blockquote> <p align="justify"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif">(g) the developer or unit of a Special Economic Zone shall maintain proper account of receipt and utilisation of the taxable services for which exemption is claimed. </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In paragraph 2, for the words,<font color="#FF6633"><strong> “ shall be subject to the following conditions ”,</strong></font> the words, <strong><font color="#660099">“, except for services consumed wholly within the Special Economic Zone, shall be subject to the following conditions ”</font></strong> shall be substituted. </font></p> </blockquote> <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=8697" target="_blank">DDT 1065, dated March 4, 2009</a> </strong>we also raised questions on the jurisdiction of officer where the refund claim has to be filed, the requirement of STC for availing the refund mechanism, time limit for sanction of refund claims and verification of authorized operations undertaken by SEZ developers and units in SEZ . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In this regard, CBEC vide Circular 114/08/2009-ST Dated: May 20, 2009 clarifies as follows: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i ) The Assistant / Deputy Commissioner should satisfy himself that the said services have been actually used in relation to the authorised operations in the SEZ . This may be primarily done through the documents submitted with the claim </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii) The Assistant / Deputy Commissioner may, in select cases, especially where the refund amount claimed is significant cause verification of the end-use of services consumed for which refund claim is filed </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii) Board's Circular No. 809/06/2005- CX , dated 01.03.2005 read with Circular No.857 /15/2007- CX , dated 02.11.2007 which prescribes the procedure relating to sanction and pre-audit of refund / rebate claims, shall apply mutatis mutandis to cases where the individual refund claim amount exceeds Rs.5 lakhs </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iv) As regards the issues relating to jurisdiction for the purposes of refund of service tax, STC code to be issued to the developer or unit of a SEZ and documents evidencing payment of service tax, Board's Circulars No. 101/4/2008-ST, dated May 12, 2008 and No. 106/9/2008-ST dated December 11, 2008 shall apply mutatis mutandis to this refund scheme </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">v) It is directed that 80% of the refund amount is to be sanctioned as an <em>ad hoc </em> interim refund to developer or unit of SEZ , within 15 days of filing of a refund claim, subject to the condition that refund claim is complete and contains the requisite documents. It is further reiterated that refund of service tax paid on taxable services used in relation to the authorised operations in the SEZ should be disposed of expeditiously. The refund claims should be finalized within a maximum period of 30 days from the date of filing of refund claim and in any case not beyond 45 days from the date of filing of the refund claim </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Finally, the jurisdictional Commissioners are advised to put in place a system of review and monitoring of disposal of refund claims filed and disposed within the prescribed time limits. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What if the refund is not sanctioned within 15 days for cases where the claim is complete in all respects with all the prescribed documents and within 45 days in other cases? Have we not seen instances where refund claims filed under Rule 5 of CENVAT Credit Rules, 2004 by exporters of taxable services languishing in the field formations on one pretext or the other, even after Board issued circular after circular directing the field formations to expedite the refund claims. This is even after bringing such refund claims under the purview of Section 11B of the Central Excise Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">How much sanctity can we attach to the time limits prescribed for this refund mechanism through a Circular? Only time will tell if this refund mechanism delivers the much needed relief to the SEZ developers and units in SEZs . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One of our experts feels, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is not a major relief as again the “consumption within SEZ " has been brought back which was the centre of disputes under the earlier Notification. How can one establish the services are consumed within SEZ ? If they feel that the refund route is cumbersome, They should have extended the exemption whether the services are consumed within SEZ or not. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And another opines, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They are trying to make a clear distinction between services which are consumed within the SEZ for which in any case an exemption is available - in the sense SEZ Act prevails. But for those services which are partially or wholly provided outside SEZ then through this amendment they want to provide exemption through refund mechanism. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I think this amendment is actually a climb-down by CBEC but at the same time retaining the right to decide on the usage, after all you never know if a service consumed outside the SEZ is actually meant for the SEZ or not, for eg . some rent a cab service utilized by the headoffice of an SEZ developer or a unit in SEZ , which may not be relevant to the authorized operations. So we have to give it to CBEC as well instead of giving everything to SEZs on a platter. In my view better sense prevailed this time. </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“But shouldn't they also amend Rule 6(6) of CENVAT Credit Rules to excluded the services consumed in SEZ ?” is what another expert asked us. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2009/stnot09_015.htm" target="_blank">Service Tax Notification No. 15/2009-S.T.,</a> and</strong> <strong> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2009/sercir114.htm" target="_blank">Service Tax Circular No. 114/08/2009-ST., both dated: May 20, 2009 </a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>When should the new Budget be passed? </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This may be putting the cart before the horse – we are yet to have a Finance Minister. In spite of the DMK sulking, we are sure to have a Finance Minister today. The validity of the Interim Budget also known as ‘vote on account' expires on 31.07.2009. So the new Budget has to be passed before 31.07.2009. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Congress in its manifesto had stated, “Within 45 days of forming the new government, the Indian National Congress will present the regular budget for 2009-10 with the basic objective of returning to the path of faster and more inclusive growth, which is so essential for fulfilling all our social and economic objectives,” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The new Government is coming into existence today. 45 days means July 6 th . So the Budget has to be presented before 06.07.2009 and passed and assented by President by 01.08.2009. This is too close – in 24 days the Budget has to be passed by both houses of Parliament and signed by the President. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nothing to worry – if the government cannot present the Budget and get it enacted before 31.07.2009, they can have another vote on account and leisurely present the Budget sometime in September or October. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In any case the Customs, excise and Service Tax rates have been already reduced and the only hope in the budget is reduction of Income Tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Running the Government is certainly more difficult than winning elections. </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>Monday'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 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></strong></font></strong></font><font color="#663399">Central Excise </font></strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A worried department knocks at the door of Tribunal to understand Commissioner(Appeals)'s order only to be ridiculed – Penalty under Sec 11AC is mandatory even if major part of duty was paid before and balance after issuance of show cause notice: Tribunal </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>this interesting case, there are two appeals, one by the Revenue, perforce by habit and the other by the assessee as he is aggrieved with the order of the Commissioner( Appeals). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In adjudication of a show cause notice of the year 2003, the jurisdictional Assistant Commissioner confirmed the demand of duty of Rs.1 ,77,991 /- against the assessee and imposed on them a penalty of Rs.10,000 /- under Rule 25 of the Central Excise Rules, 2002. He refrained from imposing any penalty on them under Section 11AC of the Central Excise Act. <em>This part of the Assistant Commissioner's order was reviewed </em> and, pursuant thereto, the Department preferred an appeal to the Commissioner (Appeals). The appellate authority allowed the Revenue's appeal. </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 size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Does the revised return efface and substitute the original return? Can the assessee be assessee in default, on the basis of the original return? </font></strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Act gives a long rope to an assessee to make payment, before attachment or garnishee orders. Such rope may even be around his neck, so as to safeguard the interests of revenue, but shall not be tight enough to strangulate him. </strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Department should permit the petitioner to operate the bank accounts and utilise the overdraft facility, so that the petitioner-Company continues to survive, at least to be able to pay the tax dues. </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Act gives lot of scope for the assessees to make payment, ( i ) before the date of filing of the return under Section 140-A, (ii) within the time prescribed in the notice of demand under Section 156, (iii) within the time prescribed under Section 220(1), (iv) within the extended time prescribed under Section 220(3), (v) within the time for payment by instalments allowed under Section 220(3), (vi) within the time granted by the Tax Recovery Officer under Section 225(1) and (vii) within the time prescribed in Rule 3 of Schedule-II. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Once an order is passed under Section 84 of the Finance Act, 1994 within two years, the provisions of Section 84(5) stand complied with - there is no further requirement that the remand order should also be passed within two years – High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 84 of the Finance Act, 1994 empowers the Commissioner to pass revision order in respect of the orders passed by the adjudicating authority subordinate to him. As per sub-section 5 of Section 4, "No order under this section shall be passed after the expiry of two years from the date on which the order sought to be revised has been passed". This is a peculiar provision unique to service tax inserted for the reasons best known to the law makers. Actually Commissioner is also barred from passing revision order if any appeal is pending before the Commissioner (Appeals). </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Monday for the judgements </font></strong></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT </font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend. </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>