TIOL-DDT 1184 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<!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="#663399" size="3">TIOL-DDT 1184</font> <br>
27.08.2009 <br>
Thursday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No Respite for Exporters on Service Tax Refunds – Troubles galore due to Illegal Levy of Service Tax! </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR</strong> facilitating refund of service tax paid on certain taxable services utilized for export of goods Finance Ministry issued Notification No. 17/2009-ST dated July 7, 2009 in supersession of Notification No. 41/2007-ST dated October 6, 2007. In this new notification at S. No. 16 of the table annexed thereto, service tax paid on services commonly known as ‘terminal handling charges' classified under any sub-clause of sub-section (105) of Section 65 of Finance Act, 1994 is also made eligible for refund. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now it appears that this new entry at S. No. 16 has put the exporters in a quandary. <strong>DDT</strong> has reliably learnt that officers in the field formations are issuing show cause notices to exporters for recovery of refunds granted under the erstwhile notification 41/2007-ST on the ground that this head was not provided for separately in the earlier notification. It appears that the department has taken a stand that the intention of the Government was not to allow the refund of service tax paid on terminal handling charges under the erstwhile notification. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The crux of the matter in this entire episode is whether ‘terminal handling charges' collected by the service providers for handling export cargo liable for any service tax at all in the first place and whether the activity can be properly classified under any of the currently defined taxable services in the statute. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In this connection, it may be noted that in terms of sub-section (23) of Section 65 of Finance Act, 1994, services provided by a container freight terminal or any other freight terminal are included in the definition of ‘cargo handling service'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, ‘terminal handling charges' are collected by service providers like AAI, CFSs , CFTs , ICD etc for handling of import/export of cargo at the respective places and in all likelihood these service providers are liable to pay service tax under taxable service category of ‘cargo handling service'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the CFSs / CFTs etc do not engage with the importers/exporters directly, such charges are usually collected as re- imbursible expenses (including by the service tax paid by the service providers) by the CHAs who directly deal with the importers/exporters (refer to TRU Letter No. B11 /1/2002- TRU dated 01.08.2002 Paras 10 and 11 of Annexure II thereof). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, the definition of ‘cargo handling service' <strong>excludes handling of export cargo</strong> from its purview. Now, in view of this clear exclusion of handling of export cargo from the purview of ‘cargo handling service' the terminal handling charges collected by CFSs / CFTs etc for handling of export cargo is not liable for any service tax. If any service tax is collected from these service providers by the Government then such collection is clearly without the authority of law. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In spite of this specific exclusion in the Finance Act, 1994 and the impending legal position vis-à-vis collection of tax on a non-taxable service, it is surprising to note that the Ministry has still included this ‘category' of ‘terminal handling charges' in Notification 17/2009-ST leading to this unfortunate situation for the exporters. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When the service itself is non-taxable and by mistake of law if any service tax is paid by the service providers and collected from the exporters, is there any justification for the departmental authorities to issue show cause notices denying refund? Further, is there any remedy available for the exporters to wriggle out of this unfortunate mess? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If any service tax was indeed paid by the service providers on terminal handling charges collected on export cargo then such collection of tax by the Government without the authority of law being illegal has to be refunded forthwith. Though provisions of Section 11B (vis-à-vis time limit) are not applicable in such a scenario, such refunds are subject to the principles of unjust enrichment as laid down by several decisions of the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The question that follows is whether the exporters who bore the burden of this illegal tax liability eligible to claim refunds. Though the provisions of Section 11B are not applicable directly in such instances, the principle mentioned therein that buyers are also eligible to claim refund of duties/taxes may be adopted to allow refunds. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry should take appropriate steps to rectify the notification and direct the field formations to process the refund claims swiftly. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Foreign Trade Policy Today – But is it legally valid? </strong></font></p>
<p align="left"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Commerce Minister Anand Sharma is to unveil the Foreign Trade Policy toady. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But is it valid? </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE heading of Chapter II of The <strong>Foreign Trade (Development and Regulation) Act </strong>, 1992 reads as: </font></p>
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Power of Central Government to make Orders and Announce <font color="#FF6633">Export and</font> <font color="#FF6633">Import Policy </font></strong></font></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 5 of the Act reads as follows:- </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. <strong>Export and Import Policy: </strong> The Central Government may, from time to time, formulate and announce by notification in the Official Gazette, the Export and Import Policy and may also, in like manner, amend that policy. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So it is section 5 of the Act which gives the Government the power to announce the Exim Policy by notification and the Government is also given the power to amend the policy. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In exercise of these powers the Government had announced the Exim Policy 2002-07. Para 1.1 of the<strong> Exim Policy</strong> 2002-07 reads as:- </font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>1.1 In exercise of the powers conferred under Section 5 of The Foreign Trade (Development and Regulation Act), 1992 (No. 22 of 1992), the Central Government hereby notifies the Export and Import Policy for the period 2002-2007. This Policy shall come into force with effect from 1st April, 2002 and shall remain in force up to 31st March, 2007 and will be co-terminus with the Tenth Five Year Plan (2002-2007). However, the Central Government reserves the right in public interest to make any amendments to this Policy in exercise of the powers conferred by Section-5 of the Act. Such amendment shall be made by means of a Notification published in the Gazette of India. </em></strong></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the 2002-2007 policy announcement by notification stipulated that the policy shall remain in force up to 31st March 2007. Of course the Government's right to amend the policy by notification as stipulated in Section 5 was reiterated in the policy too. Unless this para is amended by notification, the Exim Policy 2002-2007 is valid till 31st March 2007. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>How was the Foreign Trade Policy 2004-09 brought in? </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Para 1.2 of the Foreign Trade Policy announced on 31st August 2004 reads as </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In exercise of the powers conferred under Section 5 of The Foreign Trade (Development and Regulation Act), 1992 (No. 22 of 1992), the Central Government hereby notifies the Foreign Trade Policy for the period 2004-2009 incorporating the Export and Import Policy for the period 2002-2007, as modified. This Policy shall come into force with effect from 1st September, 2004 and shall remain in force upto 31st March, 2009, unless as otherwise specified. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This
means a new policy called Foreign Trade Policy has been announced and the
Government claims the power to flow from Section 5. But Section 5 as was
seen gives power to announce <font color="#FF6633">Export and Import Policy</font>, <font color="#FF6633">not
Foreign Trade Policy</font>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The new Foreign Trade Policy had incorporated the Exim Policy. But the Government has power to amend the policy not to incorporate it into some other policy. Therefore in the absence of any amendment to the Exim Policy 2002-07, para 1.1, that policy was to be valid till 2007. Even assuming that the Government has the power to incorporate (maybe power to amend includes power to incorporate) the Exim Policy into the Foreign Trade Policy, the fact remains that section 5 of the Act gives the Government the power to announce the Exim Policy not the Foreign Trade Policy. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what happens to the incorporated Exim Policy? Did it merge with the Foreign Trade Policy or did it still stand as a part of the Foreign Trade Policy valid till 2007? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>And what if people do not obey the directions of the policy? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section 11 of the Act:- </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>11.
Contravention of provisions of this Act, Rules, Orders and <font color="#FF6633">Export
and Import Policy</font>: </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(1) No export or import shall be made by any person except in accordance with the provisions of this Act, the rules and orders made thereunder and the Export and Import Policy for the time being in force. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2) Where any person makes or abets or attempts to make any export or import in contravention of any provision of this Act or any rules or orders made thereunder or the Export and Import Policy, he shall be liable to a penalty not exceeding one thousand rupees or five times the value of the goods in respect of which any contravention is made or attempted to be made, whichever is more. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3) xxxx </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (4) xxxx </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (5) Where any contravention of an provision of this Act or any rules or orders made thereunder or the Export and Import Policy has been, is being, or is attempted to be made, the goods together with any package, covering or receptacle and any conveyances shall, subject to such requirements and conditions as may be prescribed, be liable to confiscation by the Adjudicating Authority. </font></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So only the contraventions of the Export and Import Policy are punishable and not the Foreign Trade Policy. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The obvious conclusions are </strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The Government has no power to make the Foreign Trade Policy under section 5 of the Act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> 2. If the Foreign Trade Policy is the Export and Import Policy, it should be clearly mentioned. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> 3. If there is a separate Foreign Trade Policy, there is no provision under the Act for any penalty for contravention of the Foreign Trade Policy as the Act does not recognise the Foreign Trade Policy. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What's in a name? That which you call <strong><font color="#FF6633">Export and Import Policy</font> </strong> will be equally good as<font color="#FF6633"> <strong>FOREIGN TRADE POLICY</strong></font>. Or will it be? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What is going to be announced today? Exim Policy or FTP? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The former Commerce Minister Kamal Nath was very generous in announcing benefits and concessions which were to be given by the Finance Minister and the Finance Minister used to ensure that none of his announcements became effective. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us hope we now have a government that speaks with one voice. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ideally before announcing the Foreign Trade Policy, the Commerce Minister should sit with the Finance Minister and Revenue officials and get the required Revenue Notifications issued along with the Policy. </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"> – Friday'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="#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></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></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CENVAT Credit – Dutiable and exempted goods - where inputs are intended to be used as fuel, assessee would be entitled to avail credit of fuels even though part of it is used to manufacture of exempted final products – High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> manufacturer of both dutiable and exempted goods is entitled to avail Cenvat credit on such quantity of inputs which is used in the manufacture of exempted goods except the circumstances mentioned in sub-rule (2), which contemplates that where a manufacturer avails the Cenvat credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods then he would be required to maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take Cenvat credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. </font></p>
<p><font color="#663399" 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>Expenditure incurred by way of sea freight not eligible for weighted deduction in terms of sub-clause (iii) of Section 35B (1)(b) of IT Act, 1961 – Principle in legal maxims <em>Generalia specialibus non derogant </em> and <em>Generalibus specialia derogant </em> followed: HC Larger Bench </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>assessee company, derived income from export and claimed for weighted deduction in respect of sea freight under Section 35B of Income Tax Act, 1961 (‘the Act'). While the assessing officer and the first appellate authority disallowed the claim, the Income Tax Appellate Tribunal following its earlier decision allowed the claim. The earlier decision of the ITAT was affirmed by the Punjab & Haryana High Court in <em>CIT vs. Roadmaster Industries of India (P) Ltd </em>and <em>CIT vs. Indo Asian Switchgears (P) Ltd. </em></font></p>
<p align="justify"><font color="#663399" 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>Mumbai
Port Trust being a body corporate governed by Major Port Trusts Act, 1963,
not liable to pay customs duties on goods pilfered or lost whilst in custody – Notification
issued by Commissioner notifying Port Trust as an approved person <em>ultra
vires </em> of Section 45(1) of Customs Act, consequently declared null
and void – Bombay
High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>a judgment which has far reaching consequences, Mumbai High Court held that the Mumbai Port Trust being a body corporate set up under the Major Port Trusts Act, 1963 is governed by the provisions of that Act and not by the provisions of Customs Act, 1962 in so far as the liability to pay customs duties on lost or pilfered goods held in their custody. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more<strong> DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p><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>