TIOL-DDT 1138 · 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 1138</font><br>
23.06.2009<br>
Tuesday</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">No Penalty for a manufacturer taking irregular credit on input services</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> Departmental Officer raises this question.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See Rule 15 of CENVAT Credit Rules,</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>15. Confiscation and penalty . - </strong> (1) If any person, takes CENVAT credit in respect of <strong> input or capital goods, </strong> wrongly or in contravention of any of the provisions of these rules in respect of any input or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or two thousand rupees, whichever is greater.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2) In a case, where the CENVAT credit in respect of <strong>input or capital goods </strong>has been taken or utilized wrongly on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made there under <strong>with intention to evade payment of duty, then, the manufacturer shall also </strong>be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3) If any person, takes CENVAT credit in respect of input services, wrongly or in contravention of any of the provisions of these rules <strong>in respect of any input service, then, such person, </strong>shall be liable to a penalty which may extend to an amount not exceeding two thousand rupees.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(4) In a case, where the CENVAT credit in respect of <strong>input services </strong> has been taken or utilized wrongly by reason of fraud, collusion, willful mis-statement, suppression of facts, or contravention of any of the provisions of the Finance Act or of the rules made there under <strong>with intention to evade payment of service tax, then, the provider of output service shall also </strong> be liable to pay penalty in terms of the provisions of section 78 of the Finance Act.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(5) Any order under sub-rule (1), sub-rule (2), sub-rule (3) or sub-rule (4) shall be issued by the Central Excise Officer following the principles of natural justice.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The doubt is :</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What is the penalty for a manufacturer (who does not provide any output service) who irregularly availed credit on input services by fraud, suppression of facts?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From the above rules- the maximum penalty that can be imposed is Rs. 2000 because (4) above is not applicable</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If we look at provisions of Rule 15 - (1) (2) relates to irregular availment of credit on inputs & capital goods (3)(4) relates to input services. However, the wordings of (4) are such that it is applicable to output service provider only. Obviously it is not correct. I think the wordings need to be changed to cover even manufacturer also.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">WCO </font></strong><font color="#006600"><strong> and IATA work together to take the Paper out of Air Cargo</strong></font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The World Customs Organisation has endorsed the International Air Transport Association's e-freight project, and encourages its Member Customs administrations to work collaboratively with their aviation counterparts to facilitate the adoption of e-freight in their respective countries.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">International airfreight shipments can require up to 30 different documents, which contribute to increased costs and longer transport times. IATA e-freight replaces paper documents with IATA and WCO electronic messages based on UN/ CEFACT standards, dramatically improving service to customers through faster transit times, lowering costs and improving reliability for the air cargo supply chain.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By the end of 2009, the project plans to replace 16 documents with IATA and WCO electronic messages and by the end of 2010, 20 documents will be supported by an electronic standard, constituting approximately 64% of the paper volume.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">How WCO Members benefit from IATA e-freight </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For customs authorities and governments, the benefits of e-freight include:</font></p>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The promotion of WCO standards and e-customs among traders;</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A better, stronger and more competitive air cargo supply chain — e-freight promises to save the worldwide air cargo supply chain USD 4.9 billion annually including a saving of 24 hours on average from shipment times, reduced inventory for shippers and lower document processing costs for shippers, freight forwarders and airlines;</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The provision of advanced electronic data which allows for more effective risk management screening and targeted interventions;</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The harmonisation of import and export data through electronic messages which reduces customs revenue leakage;</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Better visibility and track & trace of shipments.</font></li>
</ul>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As of March 2009, IATA e-freight was live in 19 countries, including 8 of the top 10 locations by international cargo volumes: France, Germany, Hong Kong, the Netherlands, Singapore, South Korea, UK and the USA. The remaining two countries, China and Japan, are expected to become e-freight live this year.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">WHERE IS INDIA?</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Customs Officer Tarun Dutta's killer nabbed</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7300" target="_blank">TIOL-DDT-865-14.05.2008</a> </strong>in which we covered the poignant scenes in the Rashtrapati Bhavan where Mrs. Beethi Dutta, wife of Customs officer Tarun Kumar Dutta who was gunned down by the drug mafia while working with the DRI in Guwahati, received the Kirti Chakra.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We reported,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Mrs. Beethi Dutta , who was quite composed while receiving the award, broke down, when the DG, DRI met her later, and she told the DG that the guilty must be punished and they have some strong suspects. The DG assured her, “I will do my best”.</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT </strong> had then asked the DG how he was going to ensure that the guilty would be punished. He then told us that he would co-ordinate with the Police agencies and see that the guilty is punished.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Dreaded
drug-lord Pakhi Mian (original name Shamshad Haq Talukdar), who is suspected
to have killed Tarun, was arrested by WB Police and handed over to Assam
Police in April 2008 but he managed to escape from jail in December, 2008.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For many other crimes the WB and Assam police were also on his trail. Since he never went out of DRI's radar, his consignments of ganja were regularly seized in N-E. In recent weeks the DRI had seized about 28 MT of ganja. While on trail, the DRI sleuths stumbled upon vital clues and the same was passed on to the WB Police. With the DG, DRI coordinating intelligence with the busy Home Secretary, the STP of WB and Assam Police raided him near Durgapur and arrested the dreaded drug kingpin.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The DG had kept his promise! Tarun's soul will rest in peace and the rest of us can sleep happily with the lovely thought that the majesty of law is always supreme.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> <font color="#006600">Sharp drop expected in capital flows to developing countries – World Bank Report</font> </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The latest report from the World Bank warns that the globe is entering a new era of slower growth. The World Bank's new Global Development Finance Report, for 2009, looks at the prospects for an end to the world-wide downturn…and the long-term effects it will leave behind.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amidst global economic recession and financial-market fragility, net private capital inflows to developing countries fell to USD 707 billion in 2008, a sharp drop from a peak of USD 1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to USD 363 billion.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>Global Development Finance 2009: Charting a Global Recovery, </em></strong> warns that the world is entering an era of slower growth that will require tighter and more effective oversight of the financial system. Developing countries are expected to grow by only 1.2% this year, after 8.1% growth in 2007 and 5.9% growth in 2008. When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6%, causing continued job losses and throwing more people into poverty. Global growth is also expected to be negative, with an expected 2.9% contraction of global GDP in 2009.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Global GDP growth is expected to rebound to 2% in 2010 and 3.2% by 2011. In developing countries growth is expected to be higher, at 4.4 % in 2010 and 5.7 % in 2011, albeit subdued relative to the robust performance prior to the current crisis.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Outlook for the Developing Regions</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>East Asia and Pacific: </strong> The East Asia and Pacific region has felt the full brunt of the crisis because of its close trade links with high-income countries and because of declining investment as well as a drop in exports and industrial production. Growth for the region is projected to be 5% this year, although several EAP countries are projected to see GDP decline. Recovery across the region is expected to begin in the second half of 2009 and into 2010, reflecting substantial fiscal stimulus in China and a modest recovery of export demand in rich countries. However, the turnaround is expected to be gradual, with regional GDP forecast to increase by 6.6 percent in 2010 and 7.8 percent by 2011.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Europe and Central Asia </strong> has been the region most adversely affected by recent developments, in large part because many countries in the region entered the crisis period suffering from substantial imbalances. Large current account deficits and domestic overheating made many countries vulnerable to the abrupt reversal of capital flows and weaker export demand that the crisis generated. GDP is projected to fall by 4.7 percent in 2009, recovering to grow by about 1.6 percent in 2010.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">DO NOT PAY BRIBES – DISPLAY THE BOARD </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CVC has directed that all government offices shall display the following board in English, Hindi and the local language.</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>“DO NOT PAY BRIBES. IF ANYBODY OF THIS OFFICE ASKS FOR BRIBE OR IF YOU HAVE ANY INFORMATION ON CORRUPTION IN THIS OFFICE OR IF YOU ARE A VICTIM OF CORRUPTION IN THIS OFFICE, YOU CAN COMPLAIN TO THE HEAD OF THIS DEPARTMENT, OR THE CHIEF VIGILANCE OFFICER/THE SUPERINTENDENT OF POLICE, CENTRAL BUREAU OF INVESTIGATION"</strong></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>[<font color="#FF6600">What if the head of the Department is corrupt?</font>] </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In addition to above message to be displayed, the designation, complete address, telephone/fax nos. and E-mail address of the Head of the Department, Chief Vigilance Officer and SP, CBI are to be displayed.</font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/pdfdocs/wnew/cvc_99.pdf" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CVC Letter No. No.99 / VGL /16 Dated 5th June, 2009</strong></font></a></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">–Wednesday's cases</font></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 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><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">Producing products containing alcohol – whether Service Tax liability under Business Auxiliary Service–pre-deposit of entire amount of Service Tax demand and interest ordered - CESTAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong> issue is more than a year old and everyone felt that the Board Circular 249/1/2006- CX.4 dated 27.10.2008 had laid the matter to rest. In fact, we had in our column <strong><a href="http://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8117" target="_blank">DDT-987</a> </strong>jocularly remarked that the Advocates could simply place the Board's letter before the CESTAT and laugh their way to the banks. As they say in a T20 cricket match, the winner cannot be decided until the last ball is bowled. The present case appears to be moving in a similar direction.</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">Whether Cement used for foundation or supporting structure for machinery is eligible for credit as capital goods? - Matter referred to President for constitution of Larger Bench </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>assessee is a sugar manufacturing unit and availed CENVAT Credit on Cement used for construction of civil foundation as structural support for plant and machinery while undertaking modernisation and expansion of their chemical plant. The revenue denied the credit as the same cannot be considered as capital goods as defined under the CENVAT Credit rules and also as cement is not used either directly or indirectly in the manufacture of final products. On appeal by the assessee, the Commissioner (Appeals) allowed the credit. </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">Non-resident company provides services in oil extraction - reimbursement for loss of tools by Indian company and insurance - capital receipts are not taxable u/s 44BB : ITAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION 44BB</strong> is a special provision in the Income Tax Act for taxing receipts of non-resident companies providing services and facilities for exploration and extraction of mineral oil. Under this Section Revenue taxes all sorts of receipts @ 10 per cent and the Revenue's right to tax all payments, including reimbursements of expenses, has been upheld by superior courts. But the issue in this case is that can Revenue also tax capital receipts or a reimbursement for loss of tools under this Section? The Revenue believes all sorts of reimbursements irrespective of the nature of the receipt are taxable. But the Tribunal does not think so and has held that the reimbursement to compensate the non-resident company for having lost tools in the hole are not covered under the Sec 44BB, and thus is not taxable.</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 t</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">o <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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