TIOL-DDT 1171 · 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><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099" size="3">TIOL-DDT 1171 </font><br> 07.08.2009 <br> Friday </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CAG auditors inadvertently open doors for avoiding service tax on works contract while trying to safeguard revenue</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is reliably learnt that the officers of CAG undertaking audit of construction service providers in Bangalore have come out with an innovative interpretation in respect of works contract. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an <strong><u>amount equivalent to two per cent</u> </strong> (now four per cent) of the gross amount charged for the works contract.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Audit feels that this 2% is only an “amount” to be paid by the service providers and it is not “Service Tax”. Hence the service providers are not allowed to collect this 2% “amount” from their clients. Since the service providers audited by the CAG have already collected this 2% amount, the same has to be treated as additional consideration and another 2% has to be paid on this 2% amount collected. </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">But, what if this second 2% amount is also collected from the clients? Another 2% on 2%? Endless computation of 2% which is a mathematical impossibility? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Audit further feels no CENVAT Credit can be availed for payment of this 2% “amount” since rule 3 (4) of the CENVAT Credit rules 2004 stipulates that an output service provider can utilise the Credit only for payment of service tax on output service. </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">While making the above observation, the auditors perhaps have forgotten that Section 73 of the Finance Act, 1994 which contains machinery provisions for recovery of service tax does not refer to any “amount” and hence no notice can be issued for recovery of this 2% amount from the Works Contract Service Providers going by the interpretation of the auditors. Hence here is good news for all those service providers of “works contract” who were issued notices under Section 73 of the Finance Act, 1994 for recovery of service tax. They can argue that the amount payable under the Works Contract Composition Scheme, be it 2% or 4% is not service tax and the same cannot be recovered under Section 73 of the Finance Act, 1994. </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">And this will be a huge amount compared to the 2% of 2% wanted by the auditors. Thank you CAG. You saved the day for many service providers by providing an escape route from payment of service tax on works contract. Keep the good work going! </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Definitive Anti-Dumping Duty on imports of Titanium dioxide, Anatase grade </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Designated Authority had initiated a review for continuation of anti-dumping on imports of Titanium dioxide, Anatase grade falling under sub-heading 2823 or 3206 of the Customs Tariff Act, 1975 originating in, or exported from, the People's Republic of China imposed vide N otification No. 54/2004- Customs, dated the 19th April, 2004. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Government had extended the anti-dumping duty on these goods up to and inclusive of the 10th July, 2009 vide Notification No. 85/2008- Customs, dated the 11th July, 2008. Now in exercise of the powers conferred by sub-sections (1) and (5) of section 9A of the Customs Tariff Act, 1975 read with Rules 18 and 23 of the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995, the Central Government has imposed fresh anti-dumping duty for a further period of five years which shall be paid in Indian Currency. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This Notification is effective from August 4, 2009. The question that needs to be addressed by the Government is what will happen to the imports from July 11, 2009 to August 3, 2009? Was there no dumping during this intervening period? </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2009/ctariff09_085.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NOTIFICATION NO. 85/2009 - Cus., Dated: August 4, 2009 </strong></font></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Amendments to Notification notifying authorized operations in SEZs – In amending notifications <em>Commerce </em> as good as <em>Finance </em> – And this is no compliment to either </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Central Government has issued an amendment to Notification No. NIL dated 27 th October, 2006 as follows: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Paragraph B for the heading "Sector Specific Special Economic Zones" the following amendment is proposed by way of substitution, namely:- </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Sector Specific Special Economic Zones including Special Economic Zones for Free Trade and Warehousing” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And for the item at clause (xxx) and the entries relating there to, the following amendment is substituted, namely:- </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"(xxx) Warehousing and Commercial operations; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xxxi) Such other operations which the Board of Approval may authorize from time to time" </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Prior to this amendment clause (xxx) read as follows: </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">(xxx) Any other operation ancillary or incidental to operations specified above from (i) to (xxix) which the Board of Approval may authorise from time to time. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Now in addition to clause (xxx) a new clause (xxxi) is also introduced. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, in Paragraph C, for item (xxxii) and the entries relating thereto, the following amendment is proposed by way of substitution, namely:- </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">"(xxxii) Warehousing and Commercial operations </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xxxiii) Such other operations which the Board of Approval may authorize from time to time" </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Prior to this amendment clause (xxxii) read as follows: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xxxii) Drip and Micro irrigation systems </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Unfortunately, the Notification already has a clause (xxxiii) which reads as follows: </font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">(xxxiii) Any other operation ancillary or incidental to operations specified above from (i) to (xxxii) which the Board of Approval may authorise from time to time. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what will happen to these existing clauses (xxxii) and (xxxiii)? Assuming that clause (xxxii) is substituted, and then does it mean that Drip and Micro irrigation systems is not part of authorized operations in Multi Product SEZs? Also can we assume that this clause (xxxiii) is deleted altogether and replaced by a new clause as mentioned in the amendment? Without any express provision in the amending notification this assumption may be erroneous. Ideally the Babus should have re-numbered clause (xxxiii) while issuing this amendment. This only shows that the Babus in Commerce Ministry and Finance Ministry sail in the same boat when it comes to goofing up subordinate legislations. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=259&filename=sez/sez_notification/sez_notification.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NOTIFICATION NO. NIL Dated: 27th July, 2009 </strong></font></a></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Our Seminar unfolds in Hyderabad </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It's a great Day in Hyderabad with the Chairman CBEC, Mr Sridhar and Member, CBDT, Mr Khan addressing our Seminar in Hyderabad today. We will bring you the details as it unfolds. </font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong><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">– Monday's cases</font></strong></font></strong></font></p> <p><font color="#660099" 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 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></strong></font>Central Excise</strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>It is not open to a Tribunal under the guise of moulding relief to pass order in respect of a demand which was never made: Bombay High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The department was not at all happy with this payment of duty on own volition concept and issued a show cause notice dated 28.01.1993 to the appellant alleging that credit was wrongly taken on the PVC film or sheet, since it was exempt from duty by notification, and the manufacturer had no option to pay duty on an exempted product. The notice invoked Rule 57I of CER, 1944 and proposed to recover the credit so taken of the duty paid voluntarily on the PVC film/sheet. </font></p> <p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessee is low income earner - gets interest-free loan from builder employer to buy a flat from same builder - AO treats it as gift u/s 56(2)(v) - rationale behind bringing Sec 56 to I-T Act is to bring bogus gifts under tax net and not loan transactions: ITAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THERE </strong>is a thin line between a gift and a loan. Let's take a look at the facts of the instant case where the assessee was working as a supervisory staff with a builder. In his return, the assessee shows huge amount of loan. The loans had come from builders which were sister concerns and the assessee was working with one of them. AO finds that the total income of the assessee was meagre that he had no repayment capacity to repay the loan utilised for buying a flat from his employer only. Thus the AO takes the view that since the assessee was working with the group for several decades, hence, having regard to the long-term association, these parties gave such a huge loan to the assessee without any security and interest as a mark of gratitude irrespective of his repayment capacity and therefore, in the absence of any obligation on the part of the assessee to repay these loans, the entire transaction was of the nature of gift which was given a colour of loan. </font></p> <p><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Section 129E of Customs Act - Pre-deposit of duty and penalty - merely because goods are already seized, that would not <em>ipso facto </em> lead to conclusion that balance of convenience would lie in favour of appellant even in relation to penalty amount: CESTAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>As regards the penalty amounts, such an exemption has not been granted under Section 129E of the Act </em>. The criteria to he adopted for deciding the issue relating to the pre-deposit of the penalty amount is totally different from the one in relation to the demand of duty and interest pertaining to such goods. Being so, <em>merely because the goods are already seized, that would not ipso facto lead to the conclusion that the balance of convenience would lie in favour of the appellant even in relation to the penalty amount is concerned. </em></font></p> <p align="justify"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Monday for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT</strong> </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend. </font></p> <p align="justify"><font color="#FF6666" 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>