TIOL-DDT 113 · the untouched capture
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<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"><b><font color="#0000FF" size="3">TIOL-DDT 113</font><br> 12 05 2005<br> Thursday</b></font></p> <p align="center"><font color="#009933" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Service Tax paid on transport of finished goods – Is credit available?</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#0000FF">DDT 99</font> - 20 04 2005</b>, asked a question,<br> <br> <b>Is a consignor factory (manufacturing excisable goods) paying Service Tax on goods transported to the customer’s premises eligible for taking credit on the Service Tax paid by him?</b><br> <br> While many netizens offered their points of view, quite a few insisted that we answer the query as it was a real live problem. It appears that Commissioner of Central Excise Mumbai-IV had given a clarification :<br> <br> <b><i>“Manufacturer cannot avail CENVAT in respect of service tax paid on outward freight incurred on clearance of his final products from the factory.”</i></b><br> <br> As per Rule 3 of the CENVAT Credit Rules, 2004 a manufacturer can take credit on the service tax paid on any input service received by the manufacturer. Input service has been defined as any service<br> <br> (i) used by a provider of taxable service for providing an output service or<br> <br> (ii) used by a manufacturer in or in relation to the manufacture of final products and <b>clearance of final products from the place of removal.</b><br> <br> and includes services used in relation to XXXXXXXXXXX, <b>outward transportation up to the place of removal.</b><br> <br> Based on the above definition let’s examine whether a manufacturer is eligible for taking credit of the service tax on the outward freight incurred for clearing his finished products.<br> <br> This manufacturer is not an output service provider and therefore he is clearly out of Clause (i) above.<br> <br> But Clause (ii) above includes services used for clearance of final products <b>from the place of removal</b> as well <b>as transportation up to the place of removal.</b> This means that a manufacturer of excisable goods is eligible to take credit of the service tax paid on transport of his finished goods as the transport of finished goods is clearly covered under the definition of input service, though it may not logically look like an input service. But law is often beyond logic.<br> <br> In fact the manufacturer is eligible for credit not only of the service tax paid for transport of his goods from the factory to a depot but is also eligible for the credit of the service tax paid for transport of the goods from the depot.<br> <br> This would in effect mean that virtually a manufacturer of excisable goods will not be paying any service tax as whatever tax he has paid on the transport of inputs into his factory or clearance of final products from his factory or depot can be taken as credit. So all that a manufacturer has to do is to maintain two sets of accounts, but pay no tax in effect. Why can’t he be simply exempted?<br> <br> <font color="#006633"><b>CAG on Service Tax</b></font><br> <br> Continuing our series on the CAG’s report, DDT brings you the observations of the CAG on the Service Tax administration. Service Tax is the future tax- Consultants and Audit have to depend on Service Tax for their future. Service Tax was advertised to be a voluntarily complied tax with fewer hassles of law and enforcement, but Audit is determined to take it the levels of Central Excise and thanks to Audit, the litigation industry will thrive.<br> <br> ++ Measures taken by the Department to bring unregistered service providers into tax net proved ineffective and inadequate. Audit identified 376 active but unregistered service providers in 41 Commissionerates of Central Excise, with loss of revenue of Rs 95.21 crore.<br> <br> ++ Service tax of Rs.10.40 crore <b>was not paid by Government undertakings providing consultancy services.</b><br> <br> ++ Service tax of Rs.52.17 crore on services rendered by Foreign Service providers in India was not paid by 89 assessees receiving taxable services in 37 Commissionerates of Central Excise.<br> <br> ++ Service tax of Rs.6.99 crore was not levied by the Department on 24 technical institutes providing technical consultancy.<br> <br> ++ Service tax of Rs.11.95 crore on account of erection and commissioning activities was not levied by the Department on eight assessees.<br> <br> ++ Service tax of Rs.3.35 crore on account of technical advice, designing and development charges was not levied by the Department.<br> <br> ++ In 64 Commissionerates of Central Excise around 21 per cent of the returns due were not submitted by assessees, while 12 per cent were received late.<br> <br> ++ Inadequate assessment/verification of service tax returns by the Department led to short payment of Rs 27.42 crore on account of suppression of taxable value by assessees in 31 Commissionerates of Central Excise.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006633">Industrial Lobbies influencing the Finance Ministry?</font></b><br> <br> The CAG’s report is very uncharitable to the high officials of the Board and the Ministry. Regarding increase of abatement from MRP price, the CAG observed that<br> <br> “The Ministry of Finance stated that these abatements were increased either consequent to increase in certain element of abatement such as sales tax or review of abatement in view of genuine requests/representations received from the industry Associations.<br> <br> The reply of the Ministry is not tenable as it reinforces the fact that the decision to increase the abatement on these commodities <b>has been influenced by the influential industry lobbies and not due to any changes in the tax structure”.</b><br> <br> If redressing a genuine grievance from the trade is branded as influence by influential lobbies, who will ever dare to be fair? The CAG has no compulsions of attending to public grievances, but can the ministry be a mute spectator for fear of Audit? The Board and the ministry may be wrong but should they not have some power to decide on issues concerning their departments without fear of Audit questioning their bona fides?<br> <br> <font color="#009933"><b>FMSPEAK - I don't like search and seizures,</b></font><br> <br> <b>So said Chidambaram -</b><br> <br> ++ Nearly 90 per cent excise were raised from 5,500 large assesses out of a total 100,000 excise assessees (why can’t we exempt the rest of 94500 assessees? – DDT)<br> <br> ++ Tax rates must be moderate, tax administration should be user-friendly and enforcement impartial and strict<br> <br> ++ in the coming days, the revenue department would rely more on information and intelligence rather than on search and seizures to check tax evasion and avoidance.<br> <br> ++ I believe in impartial enforcement. I don't believe in a heavy-handed approach. <b>I don't like search and seizures, which belong to the past<br> </b><br> ++ tax evasion and avoidance had emerged as an “interesting business”<br> <br> ++ <b>There are only 85,000 assessees (Income Tax) with an admitted income of over Rs. 10 Lakhs.</b><br> <br> He was inaugurating the e-payment facility of Central Excise duties.<br> <br> <font color="#FF6666"><b>Until Tomorrow with more DDT and CAG<br> <br> Have a Nice Day.<br> <br> Mail your comments to </b></font><b>vijaywrite@taxindiaonline.com</b> </font></p> </body> </html>